Usage-based-insurance (UBI) is a method, where a driver can be ranked in categories by using data about his driving behavior. Usage-based-insurance benefits both, insurer and policyholders. The insurer can calculate your policy costs based on your driving skills, what can lead to less costs for the policyholder.
The required data for usage-based-insurance can be registered with Smartphone Apps or Hardware solutions like an IoT Platform or a telematic-box. By using usage-based-insurance a lot of data is required to calculate an appropriate premium price. Insurance companies use basis information like age, driving years, endorsement and physical status, the vehicle status (Time length of vehicle use, initial purchase price), Geospatial variables like the road type the policyholder is frequently using, potential crash types, Sensor related variables (average speed, over speed) and driver related variables like Risk preference, carefulness, safety awareness and driving enjoyment. Some insurance companies collect the date over a certain period of time, while others track their clients over the whole period.
Pricing plans vary depending by the insurance companies. There are also discounts difference in the EU and in the US by using usage-based-insurance. The potential discount in the EU is significantly higher than in the US. In the EU pricing plans are designed to reward safer drivers with lower premium, while those in the US are designed to reward longer-term insurance customers with discounts.