Page 21 - Insurance Times April 2022

mileage expected to be covered within a year. Also, the by drivers, act as the main data source for the
outline of use helps in establishing the level of associated aforementioned parameters, sending all necessary
risk. information in a central database via the mobile network.
This method encourages prudent driving behaviour and
7. Particulars of the motor: This mainly includes the type,
the associated value and the age of the motor vehicle. incentivizes customers to improve their driving performance.
8. Added safety features: To ensure the safety of the motor
UBI has gained traction as a result of its potential to generate
vehicle and prevent theft or break-ins. These include gear substantial benefits, including:
lock, wheel lock, alarm system, anti-hijacking.
Y 40% reduction in claims cost
Although all the above-listed factors did have their impact on Y 40% reduction in policy administration cost
the risk profile of the vehicle and owner, in reality only the Y More effective policy pricing
make/model and the capacity were use invariably. This is
Y Substantially lower acquisition costs
because insurers were always at an informational
(Source- EY Global)
disadvantage as information is not always reliable and
complete and getting real-time data/feedback on all those
Generally, the major driving indicators used for evaluating
listed variables was also not possible. However, with the
telematics, machine-learning and artificial intelligence in the driving risk of an individual are shown below in Table 1.
place, it is now possible to get a meaningful inference out of Exposure-based Insurance Behaviour-based
the dependable data generated and a risk profile of the (PAYD) Insurance (PHYD)
vehicle/owner. Total distance driven by the Speeding expressed either
user (the higher the mileage as a percentage of
Usage-based Underwriting (UBI) the higher the risk) kilometres/time driving
UBI is the evolution of a premium calculation system that over the speed limit or a
sprung from the demand for reliable models able to associate percentage of speeding
the driving risk with driving exposure based on the exposure Road network type Harsh acceleration or
and/or the behavioural characteristics during driving. The (increased frequency of braking
present policy pricing system around the world is unfair and accidents in the cities,
inefficient as drivers with similar characteristics such as age, increased accident severity
gender, marital status, accident record, which are considered outside)
during underwriting, pay roughly the same premiums Risky hours driving Driver’s accident history
regardless of how many kilometres they drive a year. (increased accident (severity and the
frequency during a circumstances of the
This system of pricing policy motivates drivers to cover more particular range of hours) accident)
distance annually while also not penalizing aggressive driving Trip frequency (a driver is Seatbelt use
behaviour. In general, based on driving behaviour, drivers’ more likely to cause an
probability of accident involvement could be assessed and
accident during an
assigned. In the view of the fact that the accident likelihood infrequent trip)
isn’t uniform across the entire population of drivers, charging
Vehicle type Mobile phone use
all drivers a lump sum is simply unfair.
Table 1 (Source- Innovative insurance schemes: pay as/how
Usage-Based Insurance policy comprises of Pay-As-You-Drive you drive Dimitrios I. Tselentis, George Yannis , Eleni I.
Systems (PAYD) and Pay-How-You-Drive (PHYD). PAYD system Vlahogianni)
focuses on exposure to risk and uses characteristics such as
total distance driven and the route used, to set premiums The PHYD concept is not thoroughly examined and far less
while PHYD is predicated on individual driving behaviour and implemented but since premium calculation in PHYD is based
measuring parameters such as speed, mobile phone use, hard on the evaluation of driving behaviour of the user, it leads to
braking, etc. Automotive diagnostic systems, OBD (On-Board a more realistic assessment of the risk than PAYD approach
Diagnostics), installed in the vehicle or the Smartphone held does and is thus regarded as the best performing model.

The Insurance Times, April 2022 21