Usage Based Insurance Technology: A Practical Guide for Agencies

Usage based insurance technology calculates premiums from actual measured exposure data rather than historical risk proxies. A fleet that drives 800,000 miles pays for 800,000 miles. A contractor operating equipment 7 months per year pays for 7 months. AM Best 2025 reports that 35% of personal auto new business now includes telematics data, and usage-based programs are expanding rapidly into commercial auto, workers compensation, and fleet liability. Agencies that understand how usage based insurance technology works can present UBI to clients, evaluate carrier programs, and capture commission on a product class growing faster than any other segment.

Key Takeaways

• AM Best 2025 reports 35% of personal auto new business includes telematics data in underwriting
• Three UBI models exist: pay-as-you-drive (mileage-based), pay-how-you-drive (behavior-based), and pay-per-mile (pure distance pricing)
• Telematics hardware costs dropped 60% between 2022 and 2025, accelerating commercial UBI adoption
• Carrier UBI discount ranges run from 5% (low engagement) to 40% (high engagement, excellent driving data)
• Commercial auto UBI programs reduce fleet claims frequency by an average of 19% within 18 months of enrollment (IIABA 2025)
• Workers compensation activity-based pricing programs reduced lost-time claims by 23% in pilot programs cited by NCCI 2025

---

1. What Usage Based Insurance Technology Is

Traditional insurance pricing uses proxies for risk: age, zip code, vehicle type, years in business, credit score. These proxies correlate with loss history at the population level but perform poorly for individual accounts.

Usage based insurance replaces proxies with measurements. Instead of assuming a young male driver in Houston is high-risk, UBI measures how that specific driver actually operates their vehicle. Telematics data captures hard braking events, rapid acceleration, cornering force, speed relative to posted limits, and time of day driven.

The result: a commercial fleet driver who operates conservatively, during daytime hours, on highways, may pay 25-35% less than the proxy-based rate. A driver with frequent hard braking events in urban areas may pay 15-20% more. Both prices more accurately reflect actual risk than a zip-code-based rate.

AM Best 2025 identifies three factors accelerating UBI adoption: telematics hardware cost reduction (OBD-II dongles now cost under $30 wholesale), smartphone-based telematics that eliminates hardware entirely, and carrier investment in scoring algorithm infrastructure exceeding $2.1B cumulatively since 2020.

---

2. The Three UBI Models

Every UBI product fits one of three models. The models differ in what they measure, how they price, and which clients benefit most.

Model 1: Pay-As-You-Drive (PAYD)

PAYD programs charge a per-mile rate applied to actual miles driven. The insured pays a base premium plus a per-mile rate, typically $0.03-$0.08 per mile for personal auto and $0.08-$0.18 per mile for commercial auto. Mileage is verified through telematics.

Best clients for PAYD: low-mileage drivers, seasonal businesses, part-time commercial operators. A restaurant delivery fleet that operates 6 months per year saves 30-45% versus annual flat-premium policies.

Model 2: Pay-How-You-Drive (PHYD)

PHYD programs measure driving behavior and apply a discount or surcharge to the base rate. Behavior factors include: hard braking frequency, rapid acceleration events, high-speed driving percentage, nighttime driving percentage, and phone use while driving (detected via accelerometer pattern matching).

Carriers weight these factors differently. Progressive's Snapshot program weights hard braking most heavily. Nationwide's SmartRide weights nighttime driving. Understanding each carrier's algorithm helps agents match clients to programs where their driving profile earns the largest discount.

Best clients for PHYD: established fleets with professional drivers, corporate executives, high-net-worth personal auto clients who want premium credit for demonstrated safe driving.

Model 3: Pay-Per-Mile

Pay-per-mile is PAYD simplified: a flat per-mile rate with no behavior adjustment. Metromile (now part of Lemonade) pioneered this model in personal auto. Commercial equivalents price truck cargo on per-mile freight rates.

Best clients for pay-per-mile: urban dwellers with low annual mileage, vehicles in storage or seasonal use, specialty vehicles operated infrequently.

---

3. The Technology That Powers UBI Programs

Four technology systems collect and process the data that drives UBI pricing.

OBD-II Port Devices

The On-Board Diagnostics II (OBD-II) port is standard on all US vehicles manufactured after 1996. Plugging a telematics dongle into the OBD-II port gives carriers access to vehicle speed, engine RPM, odometer data, diagnostic trouble codes, and trip timestamps. Dongles from providers including LexisNexis Telematics, Cambridge Mobile Telematics, and Arity (Allstate subsidiary) cost $18-$45 each at volume pricing.

OBD-II dongles suit commercial auto programs where the carrier or employer controls installation. For personal auto voluntary programs, smartphone-based alternatives often see higher enrollment because clients do not need to install hardware.

Smartphone Telematics Applications

Smartphone accelerometers and GPS are accurate enough to capture most driving behavior signals. Apps from Cambridge Mobile Telematics (DriveWell platform), Arity, and TrueMotion (now part of Cambridge Mobile) provide carrier-grade telematics scoring without hardware.

Smartphone telematics accuracy for hard braking and acceleration detection: within 8% of OBD-II readings (Cambridge Mobile Telematics 2025 benchmark study). GPS accuracy for mileage: within 2% of odometer readings. For most UBI pricing purposes, smartphone data is carrier-acceptable.

Connected Vehicle Data

New vehicles from Ford, GM, Toyota, and Tesla transmit telemetry data directly from the vehicle's embedded cellular modem. By 2026, 78% of new US vehicle sales include factory-embedded connected vehicle capability (McKinsey 2025). Carriers including GM's OnStar Insurance subsidiary and Ford's data partnerships with Arity access this data directly, bypassing third-party telematics providers.

Connected vehicle data is richer than OBD-II or smartphone data: it includes passenger weight (for seatbelt compliance modeling), precise geofencing, ADAS event logs, and maintenance status. Carriers using connected vehicle data can underwrite at a per-trip level.

IoT Fleet Management Integration

Commercial fleet operators using fleet management systems (Samsara, Verizon Connect, Geotab) generate telematics data as a byproduct of operations. Multiple carriers now accept direct API integration with these platforms for UBI underwriting, eliminating the need for additional telematics hardware. This reduces friction for commercial fleet clients who already use these systems.

---

4. Which Lines Use UBI and How

Personal Auto

Personal auto is the most mature UBI market. AM Best 2025 reports 35% of new personal auto business includes telematics data. Top personal auto UBI programs:

• Progressive Snapshot: behavior-based, up to 30% discount at renewal
• Allstate Drivewise: behavior-based, up to 40% discount plus cashback rewards
• State Farm Drive Safe & Save: connected vehicle data + app, up to 30% discount
• USAA SafePilot: behavior-based, up to 30% discount for military families

Commercial Auto

Commercial auto UBI adoption reached 22% of new commercial auto policies in 2025 (AM Best 2025). Fleet telematics integration drives most commercial UBI volume. Carriers including Nationwide, The Hartford, and Travelers offer commercial auto UBI programs through their fleet management data partnerships.

The Hartford's TrueRisk platform prices commercial auto exposure on actual fleet telematics data submitted monthly. Fleets demonstrating consistent low-risk behavior earn up to 25% premium credit versus proxy-based rates.

Workers Compensation

Workers compensation activity-based pricing uses wearable devices and IoT sensors to measure employee physical activity, lifting mechanics, and ergonomic risk in real time. Employers implementing wearable programs (including devices from Kinetic and StrongArm Tech) see reduced lost-time claims because the devices alert employees to high-risk movements before injury occurs.

NCCI 2025 pilot program data shows workers compensation activity-based pricing programs reduce lost-time claims by 23% within 24 months of implementation. Liberty Mutual and Zurich both offer experience modification credits for employers who implement verified IoT safety programs.

Cyber Insurance Activity-Based Pricing

Emerging UBI applications include cyber insurance priced on observed security posture rather than proxy factors. Carriers including Coalition and Corvus price cyber premiums based on continuous vulnerability scan data: firewall configuration, patch cadence, email security configuration, and dark web credential monitoring. This is UBI logic applied to cyber risk measurement.

---

5. UBI Carrier Scoring Algorithms and Discount Ranges

Source: AM Best 2025 Telematics Market Review; carrier program disclosures

---

6. How Carrier Scoring Algorithms Work

Every UBI carrier uses a proprietary scoring algorithm, but most follow the same general structure.

Data Collection Period

Most personal auto programs have a data collection period of 90-180 days. During this period, the algorithm collects baseline behavior data. The initial quote uses proxy-based rates; the renewal applies the telematics-derived discount or surcharge.

Behavioral Scoring Components

The algorithm assigns weighted scores to each behavior category. Example scoring structure from a mid-market carrier (composite, not carrier-specific):

• Hard braking events per 100 miles: 30% of score weight
• Nighttime driving (12am-4am) as percentage of total miles: 25% of weight
• Rapid acceleration events per 100 miles: 20% of weight
• Miles per day average: 15% of weight
• High-speed driving (20+ mph over limit) percentage: 10% of weight

Each component score maps to a rating factor. A driver in the top quartile on all components might earn a rating factor of 0.70 (30% discount). A driver in the bottom quartile on hard braking and nighttime driving might earn a factor of 1.20 (20% surcharge on some programs).

Renewal vs. New Business Rates

Most carriers apply telematics adjustments at renewal, not at new business binding. The new business rate uses proxy factors. After the collection period, the renewal rate incorporates the behavior score. Clients need to understand this timeline: they will not see the full UBI benefit until their second policy term.

---

7. How Agents Present UBI Programs to Clients

The agent's job in UBI is to identify the right clients for UBI programs, set accurate expectations, and manage the data collection period.

Identifying Good UBI Candidates

The best personal auto UBI candidates: clients over 35 who drive moderate mileage (under 12,000 miles per year), professional drivers (company vehicle operators, retired individuals), clients who have complained about premium increases due to proximity to high-risk zip codes.

The best commercial UBI candidates: established fleet operators with professional drivers who have completed formal driver training, fleets with existing GPS or fleet management systems, businesses with long-haul routes (highway driving scores better than urban stop-and-go).

Poor UBI candidates: clients with long commutes through urban areas with frequent stop-and-go traffic, young drivers with limited driving history, clients uncomfortable with data collection.

Setting Expectations at Enrollment

Tell clients these three things at enrollment:

1. The discount applies at renewal, not immediately. Their first term uses proxy-based rates.
2. Driving behavior affects the outcome. Hard braking and nighttime driving are the two highest-impact negative factors.
3. The data collection is specific and technical. Give them a behavior summary guide from the carrier so they understand what the app measures.

Managing the Data Collection Period

Check in with commercial fleet clients at 30 and 60 days during the collection period. Most carrier portals provide aggregate fleet behavior reports that agents can review. If the fleet is generating many hard braking events, address it with the client before the scoring period ends. A simple driver coaching intervention can shift a fleet's score from the third quartile to the second quartile, worth 8-15% additional premium discount.

---

8. Privacy Considerations and How Carriers Handle Data

Privacy is the most common objection to UBI programs. Clients ask: "Who sees my driving data? How long is it kept? Can it be used against me in litigation?"

Data Ownership

Under most current UBI program terms, the carrier owns the telematics data collected during the policy period. However, CCPA in California and similar state laws give consumers the right to request deletion of this data after the policy expires. Most major carriers retain raw telematics data for 24-36 months after policy expiration.

Data Sharing

Carriers do not currently share individual telematics records with third parties for non-insurance purposes. Aggregate anonymized data is licensed to municipalities for traffic planning and to vehicle safety researchers. This is disclosed in program terms.

Litigation Discovery

This is the legitimate concern: in states where courts have allowed telematics data discovery in personal injury litigation, a plaintiff's attorney could subpoena a carrier's telematics records from a crash event. Progressive, Allstate, and State Farm have all produced telematics data in litigation when required by court order. Agents should disclose this possibility to commercial clients with significant liability exposure.

Handling the Privacy Objection

The standard response: "The carrier collects this data only during your policy period, uses it only for pricing your policy, and does not share individual records with third parties except when required by a court order. The upside is a discount of 15-40% on your premium. Most clients decide the data collection is worth the savings."

---

9. Agency Revenue Implications of UBI

UBI creates both opportunities and pressures for agency revenue.

Revenue Opportunity: Commercial Fleet Telematics Consulting

Agencies that develop expertise in fleet telematics can charge consulting fees for fleet behavior analysis beyond standard policy placement. Fleet operators pay $2,500-$10,000 for complete fleet safety assessments that combine telematics data with DOT compliance review. This advisory revenue does not require carrier commission.

Revenue Opportunity: Workers Compensation UBI Placement

Workers compensation activity-based pricing programs carry higher commissions (12-15%) than standard WC placements because they require ongoing client management, wearable device implementation support, and monthly data review. IIABA 2025 members report UBI-enabled WC accounts generate 2.2x the annual revenue per account of standard WC placements.

Revenue Pressure: Personal Auto Commoditization

UBI accelerates personal auto commoditization. When telematics data becomes portable (carriers can request your driving history from previous carriers), clients will shop on price alone. Agents focused on personal auto must migrate to advisory services or move upmarket to avoid commission compression.

Revenue Pressure: Direct Carrier Enrollment

Most personal auto UBI programs allow direct carrier enrollment without agent involvement. Progressive's Snapshot, Allstate's Drivewise, and State Farm's Drive Safe & Save all have direct consumer enrollment flows. Agents who do not proactively present UBI risk losing clients who discover it directly.

---

Frequently Asked Questions

What is usage based insurance technology?

Usage based insurance technology refers to the systems that collect, transmit, and analyze actual exposure data to price insurance premiums. This includes OBD-II port devices, smartphone telematics applications, connected vehicle data streams, and IoT sensors. The data from these systems feeds carrier scoring algorithms that calculate individual-level risk rather than relying on demographic proxies like age, zip code, or vehicle type.

What are the three models of usage based insurance?

The three UBI models are: pay-as-you-drive (PAYD), which charges per mile driven; pay-how-you-drive (PHYD), which adjusts premiums based on driving behavior metrics including hard braking, speed, and time of day; and pay-per-mile, a simplified mileage-only pricing model. Each model suits different client profiles. PAYD benefits low-mileage drivers most. PHYD benefits professional drivers with demonstrably safe behavior.

How much can clients save with UBI programs?

Discount ranges vary by carrier and program. Personal auto programs from Progressive (Snapshot), Allstate (Drivewise), and Nationwide (SmartRide) offer up to 30-40% discount for drivers who score well during the data collection period. Commercial fleet programs through The Hartford TrueRisk and Travelers IntelliDrive offer 20-25% credits for fleets with strong aggregate behavior scores. Surcharges are possible under some programs for poor driving behavior.

What driving behaviors do UBI algorithms measure?

Most UBI algorithms measure five core behaviors: hard braking events per 100 miles (the highest-weighted factor in most algorithms), rapid acceleration events per 100 miles, nighttime driving as a percentage of total miles, high-speed driving percentage, and phone use while driving. Some programs also measure cornering force and lane departure events. OBD-II programs add engine RPM and fuel consumption patterns.

Can telematics data be used against clients in litigation?

Yes, in some circumstances. Courts in multiple states have required carriers to produce telematics records from crash events in personal injury litigation. Progressive, Allstate, and State Farm have produced such data under court order. Agents should disclose this possibility to commercial clients with significant liability exposure. Most carriers retain raw telematics data for 24-36 months after policy expiration.

How do agents present UBI to skeptical clients?

Focus on the financial case first. Show the client their current premium and the maximum UBI discount available. Frame the data collection as a short-term evaluation (90-180 days) with a specific financial outcome at the end. Address the privacy objection directly: the carrier does not share individual data with third parties except under court order. Ask: "Would you be comfortable letting the carrier evaluate your actual driving for 90 days if it could reduce your premium by 20-30%?" Most clients say yes when the question is framed around their own driving confidence.

---

See how BrokerageAudit helps agencies stay ahead of insurtech →

Written by Javier Sanz, Founder of BrokerageAudit. Last updated April 2026.