Usage-based insurance is growing globally but its dynamics are still regionally specific

Date: Friday October 7, 2022

Active usage-based insurance is growing globally with policies having grown at an 11% CAGR in the last 4 years, from 21 million in 2018 to almost 29 million in 2021 according to our estimate. This growth was partially driven by the covid 19-pandemic and its consequent mobility restrictions. Indeed, the lack of mobility greatly affected traffic volumes, which dipped by 10%-80% depending on the region. This pushed auto insurers to offer more customised policies to their drivers such as mileage-based (or Pay As You Drive) insurance programmes. Consequently, 34 mileage-based programmes were launched globally between January 2020 to December 2021.

Nevertheless, despite growing in all 5 continents, usage-based insurance adoption and its dynamics still very much vary regionally. Its growth is also expected to follow different paths in each of the 5 continents, as we discuss below.

The North-American UBI market is the largest in the world, characterised by mature regulatory structure and strong customer demand

The US is currently the largest UBI market in the world, with over 12 million active policies in 2021. The Canadian UBI market reached 1.4 million active policies in 2021. The North American UBI market is heavily dominated by the PHYD scheme, commanding a 74% market share of all active programmes in the North American region and 82% of the region’s policies. This is due to the fact that innovative insurtechs, such as Root Insurance, disrupted the auto insurance market and built a strong customer base with their PHYD programme.

Additionally, some of the major insurers in the region – such as Progressive – have invested early in usage-based insurance. This allowed them to build relevant capabilities and results several years later in a strong customer demand. Moreover, smartphones and OBD dongles are the two preferred technologies to power UBI programmes in North America, representing respectively 51% and 45% of the active UBI policies in 2021.

Looking forward, we expect smartphone technology to continue to be the go-to technology for usage-based insurance in North America. Indeed, we expect OBD-based policies to decrease over time, and smartphone-based and line-fitted based policies to increase respectively at a CAGR of 21% and 44% until 2030.

Europe is the second largest UBI market in the world, mainly driven by Italy and the UK

In Europe, Italy is by far the largest UBI market with 8 million policies. This represents 70% of the total active connected insurance policies in Europe. The connected insurance penetration on total active auto insurance policies in Italy is close to 25%, thanks to the longstanding success of black boxes to reduce theft and fraud issues in the country. Indeed, black boxes currently command an 94% share of total active policies. This share is expected to decrease, but black boxes are expected to remain the go-to technology for UBI in Italy, with a market share over 70% by 2030. Finally, UnipolSai currently controls over 50% of the Italian UBI market.

The UK is the second largest UBI market in Europe with 1.3 million active policies, commanding an 11% market share. It is mainly defined by its young customer base. Indeed, due to very high insurance premiums, several auto insurers launched insurance programmes specific to young drivers. We estimate there are currently over 25 active usage-based insurance programmes targeting young drivers in the UK.

Moreover, black boxes currently command a 56% market share of the total active connected insurance policies in the UK. We expect black boxes to remain the dominant technology up to 2030 in the UK, closely followed by smartphone technology.

Other relevant markets in Europe include Germany, France, Spain, and the Netherlands, cumulating with over 1.3 million active policies as of December 2021.

Overall, in Europe, PAYD was the most popular type of programme with 49% of the active UBI policies in 2021, mainly driven by Italy, but its share is expected to decrease by 2030. PHYD was the second most popular insurance scheme with a 43% market share in 2021. Its share is expected to increase to 59% by 2030.

In addition, we expect smartphone-based UBI to flourish in Europe, with policies growing at a 28% CAGR from 2021 to 2030. Finally, by 2030, we expect line-fitted systems and smartphones will supplant aftermarket devices to account for about 50% of the total active UBI policies.

The Asia-Pacific UBI market is expected to boom in the near future, driven by Chinese and Indian growth

The Asia-Pacific market accounted for over 2.5 million active UBI policies as of December 2021. South Korea was the leading market with 1.5 million active policies, followed by Japan and its 700,000 policies. We expect the Asia-Pacific market to become the leading market in the world by 2030, overtaking the North-American market, due to:

  • An expected sharp increase of the activity in the connected insurance market in India, following the official approval of usage-based insurance in July 2022 by the Insurance Regulatory and Development Authority of India (IRDAI) and driven by some of the leading players in the Indian auto insurance market such as Bajaj Allianz General Insurance or Edelweiss General Insurance;
  • An expected unlocking of Chinese legislative barriers starting in 2023, meaning China should take off by 2024, with a strong importance of smartphone technology and connected cars to power connected insurance policies that should together represent over 75% of the total active UBI policies in the country by 2030;
  • Other dynamic countries in the APAC region, such as Malaysia and Thailand, continuing to disrupt their auto insurance markets.

Looking forward, we expect PHYD programmes to remain the major policy type throughout the forecast period in the APAC region, and smartphones to continue to be the go-to technology for connected insurance in the region, powering over 40% of the active policies by 2030.

In the LATAM region, UBI is one of the solutions to reduce high uninsured rates

Currently, there are over 500,000 active UBI policies in the Latin-American region. Due to the lack of regulations and enforcement of the compulsory auto insurance in LATAM, the region has a very high uninsured rate of 40%, meaning over 60 million vehicles are uninsured in the region, hampering the UBI growth.

Nevertheless, in 2020, the Brazilian Insurance Association (SUSEP) announced the implementation of a regulatory sandbox programmes for Brazilian insurtechs to assist the goal of reducing insurance prices and increasing insurance penetration. Similarly, the National Insurance and Bonding Commission (CNSF) implemented regulatory sandbox programmes in Mexico in 2019. For example, MiiTuo, a Mexican digital insurer which provides a PAYD programme in collaboration with Seguro Atlas, benefited from this sandbox regulation.

Other LATAM countries, such as Chile and Argentina, are emerging as attractive UBI markets, with various players making an impact:

  • Jooycar is a Chilean TSP which provides tools to help insurers build insurance telematics products;
  • Leverbox is an Argentinian TSP which digitalises car claims reimbursement processes for insurers.

Looking forward, thanks to LATAM governments working to decrease high uninsured rates and to support innovative insurance models via regulatory sandbox programmes, we anticipate a steady growth of the LATAM UBI market, mainly driven by smartphone technology.

South Africa will continue to drive most of the UBI volume in Africa, with value propositions focused on theft and fraud

South Africa is the largest UBI market in Africa, despite being constrained by an incredibly high uninsured rate of over 70%. In 2021, we recorded over 300,000 active UBI policies in South Africa, representing about 95% of the total active UBI policies in Africa. The growth has been moderate in the past years, which can be partly attributed to the lack of adequate regulation mandating insurance.

South African authorities have tried to tackle the extremely high uninsured rate with the Insurance Act of 2017 which approved a new micro insurance licensing category. The proliferation of micro insurance, in the form of affordable UBI products, could provide the population tailored, affordable products delivered through devices such as smartphones. Due to the synergies of regulations and the insurers willingness to capture low-income customers, South African motor insurers are expected to serve the market with micro UBI offerings which could reduce the high uninsured rate and seize the previously underserved low-income group. Discovery Insure was in 2021 the major player in the South-African UBI industry, serving over 85% of the active policies in the country.

Smartphones and black boxes are currently the leading technologies to power UBI programmes in Africa, commanding respectively 51% and 46% of the market. They will remain the two main technologies used to power UBI in Africa by 2030, powering about 70% of the total active policies in the region. Finally, we expect that UBI will develop in other countries in the region, and that by 2030 the African UBI market will represent about 1% of the total active UBI policies worldwide.

Want to know more?

PTOLEMUS explores the evolution of usage-based insurance in North America, Europe, Asia Pacific, Latin America and Africa, and much more, in its new Connected Auto Insurance Regional Reports. You can download a free abstract of the reports to learn about how it can help your company’s connected auto insurance strategy.