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6 minutes read

Usage Based Insurance and IoT Technologies

By Mario Tatis
By Mario Tatis
6 minutes read

The insurance industry has been implementing new technologies successfully, and proof of that is the usage based insurance service model. It is now possible to track users’ behavior in front of the wheel, helping companies and users alike make data-based decisions. 

This top-notch service has become a reality thanks to IoT apps and devices. The result of combining IoT systems and insurance policies is a business model where users and companies agree on an insurance scheme that works considering usage-based parameters. 

In this post we explain what usage based insurance is and how IoT devices are helping track the relevant data needed for it. 

What Is Usage Based Insurance

Usage based insurance (UBI) is a way to collect data on how users drive, and based on that data, companies and users can agree on the premiums they should pay for their car insurance. The principle behind this is that good drivers should pay less, as they are less prone to an accident. Meanwhile, bad drivers should pay more, because they are more likely to have an accident. 

This is no different from how car insurances currently operate. The difference is that, using usage based insurance, it is possible for users and companies to make informed decisions based on actual data. So, instead of just making assumptions, they can calculate the real risk premiums involved.

Usage based insurance tracks important information through the use of the Internet of Things (IoT). By using IoT devices, different data points can be established. These monitor variables like how long a user drives and their overall behavior in front of the wheel, including how they use their breaks, at what speed they move around, and other important metrics. In general, it is all about monitoring what matters at the moment of driving.

IoT devices, paired up with specialized apps, can keep track of these important metrics. Additionally, they can help process the information, helping users and companies visualize it in a friendly manner. This comes as no surprise as IoT apps are used for a number of different purposes; some of these are industrial IoT and medical IoT processes.

Usage Based Insurance Data

For some, the combination of usage based insurance and IoT monitoring devices is a fantastic way to solve the issue of insurance premiums once and for all. For others, it means a privacy breach. Not everyone is keen on the idea of having their driving being monitored by a computer, and even less their data being transferred to third parties.

Privacy concerns are a big issue when it comes to this service, and this comes as no surprise. However, the question is whether this new form of privacy concern will be optional or mandatory. As this technology improves, many countries will probably opt for making them mandatory as this, in theory, should help people improve their driving skills.

A user who might not be very good at driving might be incentivized to improve their driving score so that they can save some money on their insurance. Aside from that, they will be reducing their risk level, reducing that of others too. As a result, it is not surprising that many governments decide to make this technology mandatory. 

The possibility of using data to make these decisions is not only useful for private companies and users. It also has the potential to impact how certain public policies are designed. To do so will require establishing a clear regulatory scheme for how IoT devices ought to track users, and most importantly, how their data will be managed. This means that IoT apps will have to meet some minimum requirements if they want to become the new industry standard for insurance services.

Only time will tell how this technology will evolve, but we can be sure to expect some important discussions in the short and long term. 

Usage Based Insurance Trends

Like with many new technologies, there seems to be a resistance on behalf of users to try out usage-based insurance. However, it is expected that as more people start to see its benefits, both in terms of risk reduction and savings, there will be an increase in its use. 

As I’ve already mentioned, regulations will play an important role in this process. The technology is still relatively new, and there is still a lot to figure out. Nonetheless, we can expect to see more experiments on how it is used. 

For example, IoT devices could be used not only for cars but also for motorcycles and other vehicles. This becomes especially convenient as the future of mobility seems to head toward a diversification of personalized transport alternatives. 


The evolution of this technology is highly correlated with how the interdisciplinary field of telematics evolves. Telematics combines multiple disciplines like telecommunications, computer science, and electronics into vehicles. 

In particular, it can be used to track various data points in vehicles with the purpose of making engineering improvements or helping make better decisions like calculating an insurance risk premium.  

IoT technologies play an important role in telematics as they allow researchers to understand and collect data. The result, hopefully, will be better vehicles that are more efficient, secure, and easy to use. 

The Future of Usage-Based Insurance

The use of UBI in vehicles is just the beginning. In the future, we can picture these same principles being used to calculate insurance risk premiums for other assets. In theory, it would be possible to calculate insurance policies for houses and other objects. 

There is still a lot that needs to be figured out, especially in terms of regulation, and more importantly, in how users perceive the technology in relation to their data privacy. Aside from that, there seems to be a promising future for IoT and Usage Based Insurance. 

Hopefully, we will be able to see how IoT apps make part of this evolution of the insurance industry. If you are looking for an experienced IoT app development company for your UBI project, look no more. At Koombea we have more than a decade of experience helping companies build world-class apps for all sorts of purposes. 

Contact us for a free consultation and find out why we might be the app development partner you need. 

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