Young drivers are leading the charge for usage-based insurance (UBI), according to a Towers Watson survey of U.S. drivers conducted in July 2015. When compared to other age groups, Millennials are most enthusiastic about buying UBI and believe it's a better way to calculate premiums. While interest in UBI is high among consumers in general, those in their twenties and thirties will propel the market going forward.

Millennials now outnumber Baby Boomers in the U.S. and are far more diverse, according to the U.S. Census Bureau. The buying behaviors and expectations of this rising demographic will require a complete rethink by both auto insurers and car manufacturers. Companies that are not already embracing new technology will need to adapt for younger drivers who rely heavily on their smartphones and the Internet. Most Millennials surveyed (92%) own smartphones, compared with 58% of all other survey participants.

This openness to newly available and accessible technology may explain why Millennials are much more interested in a UBI policy (88% interested or maybe), compared with 74% for other survey participants. The interest increases dramatically for both groups if premiums don't increase (93% for Millennials and 85% for others) (Figure 1). In fact, it's fair to say that Millennials are not only open to UBI, but actually prefer it to traditional ways of calculating their auto insurance premium. By far, young drivers prefer UBI (72%) to traditional premium calculation factors like age, gender and credit score, compared to 51% of other age groups surveyed. And overall, 56% of participants expressed interest in using a device or app to see their discount before buying a UBI policy.

Figure 1. Consumer interest in UBI policies with and without premium increases

Figure 1. Consumer interest in UBI policies with and without premium increases

What's Most Important to Millennials?

Millennials' acceptance of new business approaches and familiarity with technology was apparent throughout the survey. For instance, Millennials are much more likely to avail themselves of rideshares or short-term automobile rentals. They are far more likely to use rideshare companies (32% from daily to frequently) than all other participants (6%). In fact, 85% of all other consumer participants never use rideshare companies, nearly double what Millennials report (43%). Similarly, Millennials are more amenable to car sharing or short-term car rentals (29% from daily to frequently) than other participants (3%). Again, Millennials were far less likely to respond “never” (48%) than consumer participants of other age groups (88%).

When a consumer is willing to buy a UBI policy, any type of technology has a high acceptance rate, but Millennials are even more comfortable with technology. For instance, they are also more willing to participate in UBI by downloading a new smartphone app (92% versus 81%) or through an existing app (88% versus 81%), or through a car navigation system device (90% versus 83%) than their other survey counterparts.

Millennials' interest in UBI goes beyond simply an interest in new technology. They are more willing to change how they drive for a discount. Of Millennials open to UBI, 84% would change their driving behavior, compared to 53% of all others. The behaviors most likely to be changed were sticking to the speed limit (42%) and keeping a safe distance from the preceding vehicle (35%). More generally, an overwhelming 84% of respondents think that careful driving is a fair measure for applying a discount; 83% cited the importance of reducing accidents by helping people to drive more safely as the reason why they find UBI valuable.

Millennials are also more willing to pay for value-added services enabled by UBI technology, such as automated emergency response. Ninety percent of Millennials willing to buy a UBI policy said they would pay at least $45 per year for these benefits, compared to 65% of others surveyed (Figure 2).

Figure 2. Willingness to pay for UBI benefits

Figure 2. Willingness to pay for UBI benefits

Consumer Top Picks for Value-Added Services

Consumer survey participants across all age groups who would buy or consider a UBI policy ranked the three services they'd find most attractive bundled with UBI as: theft tracking (87%), automated emergency call (86%) and breakdown notification service (83%). Respondents with children also saw real value in UBI, citing as very valuable the ability to be informed about a child's accident (77%), have emergency services dispatched automatically in the event of an accident (73%) and the ability to prevent texting while driving (69%).

The last point belies the more muted interest in such technology when it applies to their own driving. Interestingly, only 29% would avoid distracted driving (e.g., no phone use or texting) if premiums and driving were connected. This tepid response is supported by another finding that only 33% of participants found distracted driving prevention very attractive. Prevention efforts described to participants would limit phone use when driving (e.g., texting disabled) or provide reports on use (e.g., the number of phone calls received). And only 17% of respondents ranked distracted driver prevention as one of the top three services they would most value. Perhaps this is more a reflection of today's current culture of smartphones and instant communication rather than an antipathy to preventive measures.

Millennials Furthest Along, More Consumer Education Needed

Insurers have an enormous opportunity. Consumers spanning all age groups are already receptive to UBI. And Millennials can help propel that momentum. There is no question that all survey participants see value in UBI policies, although a significant number of those surveyed are unaware (26%) of UBI products or their benefits. Another 46% of participants are aware of UBI products but know little about them.

Consumers with little or no understanding of UBI are missing out on a positive experience. Survey participants using a UBI policy were largely satisfied: 62% reported a very positive or positive experience; 29% were neutral, suggesting the possibility of winning over more UBI believers; and only 9% cited a negative or very negative experience. Of those who found owning a UBI policy to be a positive experience, 70% strongly agree it led to lower insurance premiums and/or additional benefits and information about their driving.

While many survey participants see potential in UBI, further education is needed to better bridge the differences between awareness and action. Indeed, Millennials are further along in this understanding and openness to UBI adoption, and ultimately to changing their driving habits. But with the right incentives and encouragement, all age groups can become more open to change and the benefits UBI offers.