How Regional Insurers Can Leverage Usage-Based Motor Insurance to Compete in a Digital Era

The landscape of auto insurance is rapidly changing, with usage-based motor insurance (UBI) playing a pivotal role in the transformation. UBI offers a personalized pricing model based on how and when a driver uses their vehicle, offering both consumers and insurers a more accurate way to assess risk. While large national carriers like Progressive and Allstate have capitalized on this trend, regional insurers are uniquely positioned to take advantage of the growing demand for usage-based motor insurance. In this blog, we explore how regional carriers can tap into this evolving market, leverage their local knowledge, and meet the needs of today's drivers.

What is Usage-Based Motor Insurance?

Usage-based motor insurance (UBI) is a modern model of auto insurance that sets premiums based on the actual usage of a vehicle, rather than relying on traditional risk factors like age, gender, or zip code. By using telematics devices—either installed in the car or through smartphone apps—insurers track driving behaviors such as speed, braking, acceleration, mileage, and even time of day when driving occurs.

The benefit for consumers is clear: if they drive safely, they can earn discounts, making it a more affordable option for good drivers. For insurers, usage-based motor insurance provides a more precise way to assess risk, potentially lowering costs and improving customer satisfaction by offering a fairer pricing model.

Usage-Based Motor Insurance: A Fast-Growing Market

The usage-based motor insurance market is expanding rapidly. As of 2023, over 40% of U.S. drivers have opted into UBI programs, and this figure is expected to grow significantly, with the market projected to reach $70.46 billion by 2030. This represents a healthy compound annual growth rate (CAGR) of 7.2%. However, despite the clear advantages, the usage-based motor insurance market remains fragmented. While large insurers have successfully marketed UBI to a broad audience, smaller, regional insurers have been slower to adopt this model, often due to perceived high costs and technological barriers.

But there’s good news for regional insurers: the cost and complexity of implementing usage-based motor insurance are decreasing, thanks to advancements in technology, particularly smartphone-based telematics. This opens up a significant opportunity for regional insurers to compete with larger, national brands.

Smartphone-Based Telematics: The Game-Changer for Regional Insurers

One of the key drivers of growth for usage-based motor insurance is the rise of smartphone-based telematics. Unlike traditional UBI programs that require specialized hardware like OBD-II devices, smartphone-based solutions leverage the sensors and GPS technology already embedded in most modern smartphones. This makes it much more affordable for regional insurers to implement usage-based motor insurance programs without the upfront costs of installing dedicated devices in vehicles.

By 2024, it’s estimated that 75% of new cars sold in the U.S. will come with built-in cellular connectivity, providing even more opportunities for insurers to collect driving data effortlessly. Smartphone-based telematics not only makes UBI more accessible but also more appealing to a younger, digitally native demographic, who prefer managing their insurance policies through apps on their smartphones.

For regional insurers, this represents a unique advantage: they can launch usage-based motor insurance products with little upfront investment, using technologies that are both cost-effective and scalable.

The Local Advantage: Leveraging Regional Expertise

While national carriers may dominate the headlines, regional insurers have a distinct advantage in offering usage-based motor insurance—local expertise. Unlike larger competitors who must cater to a broad, national market, regional insurers have deep knowledge of their specific regions and the unique driving habits of local consumers. This insight allows them to tailor usage-based motor insurance programs that are more relevant and valuable to their communities.

For instance, a regional insurer in a state with harsh winter conditions like Minnesota or Michigan could design a usage-based motor insurance program that rewards drivers for safe behavior during winter storms, such as reducing speed or avoiding dangerous icy roads. Conversely, in urban areas with heavy traffic, insurers could offer rewards for avoiding congestion during peak hours. These highly localized offerings are something national carriers often struggle to replicate on a large scale.

By leveraging their understanding of local driving behaviors, regional insurers can better assess risk, offer more personalized pricing, and build stronger relationships with their customers.

Regulatory Sandboxes: A Boost for Innovation

One of the reasons why some regional insurers have been hesitant to adopt usage-based motor insurance is the regulatory complexity involved. However, the regulatory environment is shifting to become more favorable, particularly for smaller carriers. States like Arizona, Kentucky, and Pennsylvania have introduced insurance innovation sandboxes, allowing insurers to test usage-based motor insurance products under relaxed regulatory requirements.

These sandboxes offer a unique opportunity for regional insurers to experiment with UBI models, gather data, and refine their products before launching them on a wider scale. This allows regional carriers to be more agile and nimble, testing new ideas and adjusting their strategies without facing the heavy compliance burdens that larger insurers might encounter.

By taking advantage of these regulatory sandboxes, regional insurers can introduce usage-based motor insurance products faster, adjust them based on real-world data, and bring them to market with more confidence.

Overcoming Barriers: Educating Consumers and Building Trust

Despite the potential benefits of usage-based motor insurance, one of the biggest challenges regional insurers face is consumer education. Many drivers are still unfamiliar with the concept of UBI or may be hesitant to share their driving data with insurers. Regional carriers will need to invest in educating consumers about the advantages of usage-based motor insurance, including the ability to save money by demonstrating safe driving habits and enjoying more personalized coverage.

Building trust is also crucial. Transparency in how data is collected and used is essential to reassuring customers about privacy concerns. By clearly explaining how the technology works and how their driving data will be protected, regional insurers can alleviate consumer fears and encourage them to try UBI programs.

The Path Forward: Competing with National Players

The future of auto insurance is increasingly personalized, and usage-based motor insurance is driving that change. Regional insurers have a unique opportunity to capitalize on this growing trend, thanks to the rise of smartphone-based telematics, their deep local knowledge, and the flexibility offered by regulatory sandboxes. By offering tailored usage-based motor insurance solutions, regional insurers can differentiate themselves from larger competitors and build strong relationships with their communities.

To remain competitive, regional insurers must act quickly and invest in the right technology, consumer education, and product offerings. By leveraging their local expertise and embracing the digital-first approach of usage-based motor insurance, regional carriers can not only compete with national insurers but also thrive in this new era of personalized, data-driven insurance.