Usage-based insurance (UBI) is car or truck insurance whose price depends on how much, and how safely, the vehicle is actually driven. The data comes from sensors in a phone, a car or a truck, which record speed, braking and distance and send them to the insurer. Collecting and sending vehicle data in this way is called telematics. There are two common forms. Pay as you drive charges by the number of kilometres driven. Pay how you drive charges by how safely the vehicle is driven.
Here is how it works. The customer installs the insurer's app, or the car sends its data through a connected car platform, or a small telematics device is fitted to the vehicle. On every trip, the sensors record hard braking, fast acceleration, speeding, phone use while driving, and driving late at night. The software turns each trip into a score. The insurer uses the average score to set the next premium in its insurance core system.
For instance, consider a software engineer in Hyderabad who drives 4,000 km a year, mostly at weekends. Over six months, her app records few hard brakes and almost no phone use. Her driving score is 86 out of 100. At renewal, her premium falls by 15 per cent.
The same sensors can detect a crash. A sudden jolt above a set force tells the software that a crash may have happened. The app can then call the driver, and send help if there is no answer. It also starts the claim with the speed and the force of the impact. This helps AI claims estimation judge whether the damage matches the crash.
Trucking companies use this too. Some insurers price a trucking company's policy from the data that its fleet management system already collects, so safer fleets pay less.
In India, IRDAI, the insurance regulator, allowed general insurers to offer pay-as-you-drive and pay-how-you-drive add-ons to motor policies in 2022. Digital insurers were among the first to offer them. Some drivers find the tracking intrusive, so it is usually optional.