In traditional insurance models, businesses pay a fixed premium based on factors like company size or fleet type, regardless of actual usage or risk. This often leads to inefficient underwriting processes. A usage-based insurance program (UBI) on the other hand, offers a dynamic and data-driven approach. UBI uses real-time data, such as driving behavior and vehicle usage, to tailor coverage and pricing, providing more accurate risk assessment.
As businesses seek more flexible, cost-efficient solutions, UBI is rapidly gaining traction in commercial insurance. This shift is driven by several factors: broad commercial telematics adoption, demand for personalized policies and the need to control rising premiums. Insurers who embrace UBI stand to gain significant advantages, from enhanced underwriting and loss control strategies to improved profitability.
With the global UBI market projected to soar to a valuation of $309.5 billion by 2032, growing at a compound annual growth rate (CAGR) of 20.85% from 2024 to 2032, it's clear that UBI is not just a trend. It's the future of insurance. Those who adapt early will be well-positioned to thrive in this evolving landscape.
The Push and Pull of Usage-Based Insurance Program Adoption
As businesses seek more control over rising costs, many are enticed by UBI programs for the potential savings that they offer. In the past decade, per-mile premium costs for commercial trucks have increased by nearly 50%. While this is specific to the trucking industry, costs have risen year over year across commercial auto. This is driving fleets to shop for cost-efficient options and the technological advancements in fleet operations make UBI an attractive solution.
The rise in nuclear verdicts – often highly publicized, multi-million-dollar legal judgments – has also been a significant motivation for both insurers and businesses to identify and mitigate risk more proactively. Usage-based insurance programs provide a clear path to decreasing the likelihood of a nuclear verdict, as companies with better driving records and fewer claims are rewarded with lower premiums.
Advancements in Technology Fuel UBI Adoption
The use of telematics and the availability of data is transforming how vehicle data is collected and analyzed. A recent survey that we conducted revealed that although telematics usage varies across industries, penetration is quite high, with 80% of fleets monitoring over 80% of the vehicles in their fleet. Trucking is highest, with 91% of transportation respondents reporting high utilization. Being able to easily access driving behavior data on commercial policyholders allows for more accurate risk assessments. By tracking factors like driving behavior, mileage and even environmental conditions, insurers can customize premiums based on actual risk.
3 Primary Challenges to UBI Programs
Education
According to recent research that SambaSafety conducted, convincing fleets to share their telematics data is the top challenge for commercial carriers. While only 36% of fleets currently share data with their insurers, 75% of fleets surveyed that don’t share data have never been asked to do so by their insurer. This indicates that the resistance may not be as strong as originally expected. This is a huge opportunity to educate policyholders and address any concerns that the business may have about usage-based insurance programs.
Data Management
Data management is a top concern for carriers working to build a UBI program that’s impactful. The business transformation required to use telematics data effectively shows up as the second biggest challenge, with nearly 67% of carriers surveyed listing it as an obstacle to growing a telematics program. The cost for obtaining and managing the data comes in right behind it, with 50% of carriers having concerns.
Fleet Technology
Roughly half of the commercial carriers that we surveyed list upgrading fleet technologies to support telematics and UBI programs as a challenge that they’re facing. Telematics devices can be expensive, creating a barrier to widespread adoption. However, considering that 88% of fleet managers that we surveyed use telematics in their business, there is an opportunity to leverage technology that’s already in use. Working with partners, like SambaSafety, that have integrations with numerous telematics service providers (TSPs) can make accessing the data simple and cost-efficient.
3 Key Benefits of UBI for Commercial Insurers
1. Underwriting Precision
One of the major advantages of UBI is its ability to improve underwriting through more accurate pricing models. By leveraging real-time data collected from telematics, insurers can assess risk more precisely, tailoring premiums to actual usage and driving behavior. This level of precision not only benefits insurers but also ensures businesses are paying for the coverage they truly need.
2. Evidenced-Based Loss Control Programs
UBI strengthens loss control by helping businesses monitor and manage risks more proactively. Through telematics-driven insights, insurers can offer personalized solutions, such as driver training programs, to further reduce violations. These offerings create an opportunity to cross-sell value-added services that improve safety while enhancing the insurer-client relationship. Working with a partner, like SambaSafety, that has policyholder solutions that complement the services an insurer offers can help reduce violations within a fleet by up to 77%.
3. Enhanced Customer Loyalty
As policyholders experience lower premiums and personalized risk management, they are more likely to remain with insurers who prioritize their needs. This collaborative approach boosts satisfaction and opens the door for future engagement, creating long-term value for both parties. Customers who are enrolled in a UBI program are more open to cross-selling opportunities, like risk consulting services, driver training and other risk management software.
The Road Ahead for UBI in Commercial Insurance
Usage-based insurance programs are here to stay. Commercial insurers will need to join the UBI movement or risk irrelevance in the near future as fleets shift to more progressive, fair alternatives. We’re already seeing the tides turn based on results from our yearly telematics report, with 82% of commercial carriers now using telematics in their business, up from 65% last year.
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