Usage-based insurance
Insurance whose premium depends on actual observed usage or behavior, rather than on indirect category variables alone.
Usage-based insurance covers pricing schemes based on the policyholder's actual usage or behavior, measured by sensors, rather than on indirect variables such as age or place of residence. It comes in pay-as-you-drive, pay-how-you-drive and manage-how-you-drive variants, and runs on embedded telematics or the smartphone. It promises actuarial fairness, with each driver paying the fair price of their own risk, and prevention through driver coaching. The downside is that pooling erodes: the more individualized the pricing, the less shared ignorance remains to pool. It also carries a risk of indirect discrimination and of the commodification of behavioral data.
Textbook case: an insurer adjusts a driver's monthly premium based on braking, speed and time of day as recorded by an app. Careful driving lowers the premium, risky driving raises it.
UBI, usage-based insurance, pay-as-you-drive, pay-how-you-drive
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