After we covered the basics of usage-based insurance (UBI), we are continuing with our introduction to UBI with the most popular product models: pay how you drive (PHYD) and pay as you drive (PAYD).
Both models are smartphone-based and rely on telematics technology for behavioral data collecting, usage consumption analysis, and report creation.
These products make it possible for insurers to differentiate themselves from traditional insurance companies and dive into a new market by targeting the modern user. All those looking to offer insurance products via digital channels should consider taking upon usage-based products like PHYD and PAYD since it's the next step for the insurance industry.
This new business model will additionally help you with brand awareness and positively impact consumer perception.
Your clients are already used to the usage-based consuming model in other products they use in their day-to-day routine – it's only a matter of time when they'll start expecting it from you.
The pay-as-you-drive Model (PAYD)
As the name suggests, the pay-as-you-drive model depends on your client's driving. The policy price can be calculated by the driven distance or the time (hours, days).
Furthermore, just like traditional insurance policies, the prices depend upon the type of vehicle used, measured against time, distance, behavior, location, and additional data.
PAYD rationalizes the data collection process by logging the mileage automatically through telematics technology such as onboard devices; it requires credible mileage data. The data is most often transferred wirelessly and used by the insurance company to determine individual premiums based on driving distances.
Pay-per-mile insurance (PPM)
Pay-per-mile insurance (PPM) within the PAYD model uses distance driven as the main parameter for price calculation.
Pay-per-mile insurance (PPM) is firstly and mostly changing how comprehensive coverage is priced and consumed. The policy covers stationary risk and associated damages on a whole year basis. In contrast, other risks such as collision with an animal, other car or object, bodily injuries, and road assistance services are covered and priced on mileage basis.
With Amodo's technology for the pay-as-you-drive model, you could create a new insurance product tailored to fit your clients' individual needs. Meaning you could start making personalized offers due to the collected and analyzed behavior data.
Follow this link for more additional information about PPM insurance, including:
- the main benefits for Insurance Carriers who offer Pay Per Mile insurance
- changing clients' preferences due to COVID-19
- how Pay Per Mile works from the clients' point of view.
Pay-per-mile policies are charged based on factors similar to those used when setting a traditional insurance policy. The number of mileage in the previous month is the base for the monthly bill. The base rate varies depending on your company policy and your client's status and history records, including past at-fault accidents, vehicle model, age, marital status, and more.
The main benefit for your client is the control over the cost rate based on the actual mileage. The client can achieve significant savings by tracking the miles and monthly costs and get a personalized policy.
Amodo's telematics platform enables your clients to manage their monthly distance "allowance" and set the parameters for the entire year, as well as to top it up with extra miles whenever needed.
Pay-per-hour insurance (PPH)
Pay-per-hour insurance (PPH), also known as hourly insurance or pay-as-you-go insurance, is very similar to the pay-per-mile model.
The main difference is that the pay-per-hour (PPH) model can be applied to other insurance products, besides motor insurance, since cost calculation depends on the hours instead of the distance.
This type of insurance is newer within the pay-as-you-drive model but very popular with end-users. They are pleased that it's easy to arrange and very specific to their needs. It's an excellent service for building customer loyalty, especially for frequent business travelers.
Your clients have the option to define the duration of the insurance policy in advance or shortly before the trip. The policy duration can be a few hours or days if further travel is involved.
Pay-per-hour insurance is excellent for extended journeys shared with other drivers, business trips uncovered by the standard policy, test driving and driving tests, driving a borrowed car, etc.
Depending on your company policy, the only information needed is personal information and the car registration number. The cost depends on the policy duration, client information (mainly driving experience), location, and vehicle type.
Together with the P&V Group, Amodo has created a new type of insurance proposition for the Belgian market, called CliCover. This product is an on-demand insurance product where the client decides when to activate this coverage and for how long. Motorcycle damage insurance was a part of this concept.
The pay-how-you-drive Model (PHYD)
The PHYD model uses the motivation for safer driving for pricing calculation based on the driver's safety score.
These parameters used for score calculation are driving behavior data related to, for example, acceleration, braking, speeding, cornering, and lane changing.
The database can log additional data points, such as:
- driving area (e.g., urban or rural),
- trip duration,
- road types,
- route choices,
- possible collision data,
- airbag deployments,
- trip location and time.
Sophisticated algorithms are subsequently applied to the individual driving data sets to arrive at each driver's rating, which denotes the risk profile and hence impacts the insurance premium. Aggressive behavior such as frequent accelerations, harsh braking, and fast lane changing is detrimental to the driver's score, whereas safe driving traits result in an improved score.
Safety Score calculation
The score calculation should incentivize specific behavior and penalize others. The most common violations for penalization are:
- Speeding: the paramount road violation worldwide
- Harsh driving: this type of driving can lead to accidents and regular damage to the car
- Excessive idling: unnecessary idling damages the car engine and causes air pollution
The driver receives a detailed evaluation of his driving behavior after every journey. Every smart ride can lead to lower claims and, consequently, to a more straightforward proposition to drivers.
The PHYD model is great for gaining new clients, especially the ones who are new to driving. Since car insurance is mandatory, this way, they'll also benefit from tracking the way they're driving and improving along the way for a better policy price. You can create policies that include lower or higher premiums depending on the driver's behavior.
The PHYD model motivates drivers to avoid violations in two main ways: with different types of discounts and cash-back guarantees.
Pay-how-you-drive discount technique
The program provides discounts for policy renewal and various rewards such as e-vouchers from different partners like cafes, car washes, grocery delivery, online shopping, and restaurants.
Pay-how-you-drive cash-back technique
Based on the number of parameters, drivers can get a monetary value in monthly cash-backs based on their road safety performance. With this benefit, drivers get a straightforward response and an incentive for their driving style.
PHYD Case Studies
To participate in "Safe miles, save lives," the driver had to be a user of Maritime's CoPiloTT mobile app and record his safe driving. Safe miles, save lives: powered by Maritime Financial Group
Amodo and AIG Malaysia have a long and successful partnership. With this technology, AIG can understand clients' individual needs based on smartphone sensors, context, and algorithmic learnings. Most importantly, It is part of the overall company's commitment to safer roads.
The first project, "Safe Ride & Drive," a mobile protection app, addressed the issues relating to distracted driving in the Italian market, with focus placed on the mobile-savvy driver segment aged less than 24 years old.
Through the Amodo platform, young BNP Paribas Cardif drivers & their parents gain access to a set of support services such as Geo-Location of the car, avoid text/calls while driving functionality, and share driving behavior and drivers related alerts.
Porsche bank gave its selected clients a chance to acquire a discount on their monthly fees while using the PHYD program. Their improved driving skills define the deal and cash-back amount. In the second phase, this project should be available to all Porsche clients.
The Amodo platform enables insurance carriers and brokers to create usage-based products build on insurance telematics. You can analyze data, create engagement and communication strategies, and market new products within the platform.
Interested in creating PAYD and PHYD insurance products? Fill out the form below for more information on how to start!