APIs for Usage-based Insurance (UBI)

APIs for Usage-based Insurance (UBI)

In recent years we have experienced a significant transformation in the way people and companies interact with goods and services, showing a general trend that has led us from the consumption of products to the consumption of services. Probably the three clearest examples that come to mind when we think of this transformation are carshare services versus buying our own car, streaming music versus buying physical discs, or cloud computing services instead of maintaining our own servers.

A similar trend is also taking place in the Insurance Sector, moving away from the traditional insurance model, where consumers purchase specific insurance products, towards a service consumption model in insurance that emphasises flexibility and customised solutions, where insurers offer personalised services tailored to individual needs based on the data they can obtain from their customers.

Insurers provide services through digital platforms that enable real-time interactions and data exchange. A model where services focus on preventing losses rather than simply compensating for them by shifting the focus from static products to dynamic and personalised services that adapt to policyholders’ needs and behaviours.

In this context, Usage Based Insurance (UBI) has emerged, where insurers track driving behaviour (speed, braking, mileage) via telematics devices or smartphone apps and premiums are adjusted based on actual driving habits, promoting safer behaviour.

The implementation of usage-based insurances entails a series of advantages:

• Premiums are adapted to individual behaviour. Rather than a fixed annual premium, UBI adjusts the rates depending on actual use patterns. This approach ensures safe drivers pay less. It promotes equity and responsible driving.

• It relies on telematic devices or smartphone applications to collect driving behaviour data. These devices record factors such as speed, acceleration, braking and mileage which insurers analyse to assess risk accurately. Safer driving habits lead to lower premiums, encouraging policyholders to drive responsibly.

• Policyholders appreciate the transparency and control UBI offers. They can monitor their driving habits and adjust their behaviour to save on premiums.

• It moves from “detect and repair” to “predict and prevent” in line with the industry’s evolution from a reactive to a proactive model.  With AI and deep learning techniques, insurers can predict risks, prevent accidents and optimise customer experiences.

But beyond the advantages, it also poses a series of challenges not only in terms of financial feasibility or adjustments to the tax system, but also in terms of technology, and APIs are a fundamental way to meet these technological challenges.