Friction might be defined as a process that dissipates the energy of a system over time. It's an interesting concept when applied to usage-based insurance (UBI), which encourages policyholders to reduce the friction in their vehicles through responsible driving behaviors, such as gradual braking, and converts, in part, resulting energy savings into premium discounts.
UBI has energized pundits and policymakers since its inception. Yet our research indicates that UBI's penetration of the overall auto insurance market has generally languished at less than 10%. This fact, coupled with operational costs and complexities, has at times absorbed some of that energy.
Lately, however, the industry has witnessed a wave of innovation involving UBI, which could help ease friction and reenergize the UBI discipline. One such indicator of this trend was a recent decision by the Global Insurance Accelerator (GIA) to accept two telematics start-ups into its 2016 portfolio. (The GIA is a mentor-driven, U.S.-based business accelerator with a focus on startup companies targeting the insurance industry.) This could be a sign that UBI is gaining momentum and might yet live up to its promise.
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