Usage-Based Insurance (UBI) is a motor insurance model in which premiums are influenced by how a vehicle is actually used, rather than relying solely on static factors such as age, location, or historical claims data.
Traditional motor insurance pricing is built on averages. While demographic and vehicle-related factors remain important, they do not fully reflect real-world driving exposure or driving behavior. Usage-Based Insurance introduces telematics data as an additional layer of risk insight, enabling insurers to align pricing more closely with actual risk.
By incorporating real-world mobility data, Usage-Based Insurance helps insurers move from generalized assumptions toward measurable exposure and behavior patterns. The result is more differentiated underwriting, fairer pricing logic, and new opportunities for proactive risk management.
How Usage-Based Insurance Works
At its core, Usage-Based Insurance relies on telematics technology to collect mobility data. This data is typically captured via:
- Smartphone-based telematics
- Embedded vehicle systems
- OBD or IoT devices
- Connected car platforms
Depending on the design of the program, insurers may analyze variables such as:
- Mileage and trip frequency
- Time of day
- Road type (urban, rural, highway)
- Trip duration
- Speeding patterns
- Harsh acceleration or braking
- Smartphone distraction while driving
The collected data is translated into exposure metrics, behavioral indicators, or risk scores that complement traditional actuarial models.
The Two Main Models of Usage-Based Insurance
While the term Usage-Based Insurance is often used broadly, it typically refers to two distinct but related approaches.
Pay As You Drive (PAYD)
In a Pay As You Drive model, premiums are linked primarily to driving exposure – how much, when, and where a vehicle is used.
For example, drivers who travel fewer kilometers, avoid high-risk times of day, or predominantly drive on lower-risk road types may benefit from more favorable pricing. PAYD focuses on exposure to risk rather than driving style.
Pay How You Drive (PHYD)
In a Pay How You Drive model, premiums are influenced by driving behavior.
Risk-relevant patterns such as speeding, harsh braking, aggressive acceleration, or smartphone distraction are analyzed to assess driving quality. Safer driving behavior can be rewarded through discounts, incentives, or premium adjustments. PHYD models often include feedback mechanisms to actively support behavior change over time.
Many modern programs combine exposure-based and behavior-based elements to create a more complete view of risk.
Why Usage-Based Insurance Matters for Insurers
Motor insurance operates in markets with tight technical margins and high sensitivity to claims frequency. Usage-Based Insurance enables insurers to:
- Improve risk segmentation beyond demographic averages
- Identify low-risk drivers within traditionally high-risk segments
- Detect hidden risks in seemingly stable portfolios
- Enhance underwriting precision
- Support accident prevention through behavioral feedback
- Strengthen customer engagement with transparent, data-driven logic
Importantly, Usage-Based Insurance does not need to replace actuarial pricing models. In well-designed implementations, telematics insights act as complementary risk intelligence that enhances existing structures rather than disrupting them.
Dolphin Technologies and Usage-Based Insurance
Dolphin Technologies supports insurers in designing and operating Usage-Based Insurance programs through a modular telematics ecosystem.
With the MOVE SDK, insurers can integrate smartphone-based telematics directly into their existing mobile applications. This enables trip detection, driving behavior assessment, contextual risk warnings, emergency features, and event-based customer communication without requiring separate hardware.
For insurers seeking behavior- and exposure-based risk intelligence without running a full telematics program, MOVE Score provides a privacy-aware scoring layer that complements traditional underwriting models. It combines Exposure to Risk metrics with driving behavior indicators while maintaining strict separation between personal data and telematics data.
In addition, Dolphin’s telematics platform supports analytics, orchestration, and integration into underwriting, claims, and marketing systems. Depending on strategic goals, insurers can implement exposure-based models (PAYD), behavior-based models (PHYD), or hybrid approaches aligned with their portfolio objectives.
The focus is not only on measuring risk, but on enabling prevention, incentives, and meaningful customer interaction grounded in real-world mobility data.