For decades, insurers have recognized that vehicle usage is likely a prime component of insurance risk exposure. To capture some of this information, insurers will often ask policyholders, "What's your annual mileage?" While the answer may be useful, it's often not reliable. Only recently have technological advances arrived to directly measure these usage components, including how many miles policyholders drive.
The current standard in auto usage-based insurance (UBI) has gone much further than just annual mileage in helping insurers understand the driving behavior of policyholders: for example, how far a policyholder drives and the number of braking or speeding events. Traditionally, telematics vendors made these data variables available to insurers simply because it was the only data available. Unfortunately, those variables are just secondary contributors to risk. Understanding risky driving behavior requires richer data — environmental data to capture the context of driving actions.
Data on road type, traffic, and weather are examples of the information that will feed into next- generation auto UBI applications. This data will provide a much richer view of policyholders' driving habits, but insurers will need to overcome several initial challenges before they can take advantage of these rich data sets.