The global usage-based insurance (UBI) for automotive market is experiencing exponential growth, driven by the digital transformation of the automotive sector, rising consumer demand for personalized insurance products, and advancements in telematics technology. Valued at USD 74.42 billion in 2024, the market is projected to reach USD 91.16 billion in 2025 and surge to USD 570.44 billion by 2034, exhibiting a remarkable CAGR of 22.6% from 2025 to 2034.
Market Overview
Usage-Based Insurance (UBI), also known as pay-as-you-drive (PAYD) or pay-how-you-drive (PHYD), is revolutionizing the automotive insurance landscape by aligning premiums with individual driving behavior. By leveraging telematics and connected vehicle technologies, insurers can assess risk more accurately and offer dynamic pricing based on mileage, driving habits, time of travel, and location.
This shift from traditional risk pools to data-driven pricing is not only improving underwriting accuracy but also enhancing customer engagement, promoting safer driving behavior, and reducing claims frequency.
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UBI programs are now being offered across a range of formats including:
- Pay-As-You-Drive (PAYD): Based on total miles driven
- Pay-How-You-Drive (PHYD): Based on driving patterns such as speed, braking, and acceleration
- Manage-How-You-Drive (MHYD): Feedback-based models to improve driving behavior
- Distance-Based Pricing: For low-mileage or infrequent drivers
The convergence of automotive digitization, real-time analytics, and customer-centric product design is placing UBI at the forefront of auto insurance innovation.
Key Market Drivers
1. Growing Demand for Personalized Insurance
Consumers are increasingly seeking customized insurance policies that reflect their actual driving behavior and provide fairer premium pricing. UBI meets this demand by offering drivers direct financial incentives to drive safely and reduce mileage. This user-centric model is particularly appealing to younger, tech-savvy drivers and urban commuters.
2. Expansion of Telematics Infrastructure
Widespread integration of telematics devices, mobile applications, and vehicle-embedded sensors is facilitating large-scale UBI adoption. Automakers and insurers are increasingly collaborating to enable seamless data sharing, supported by cloud computing and Internet of Things (IoT) platforms.
The ability to collect granular driving data in real-time is helping insurers better assess risk, reduce fraud, and lower operational costs.
3. Regulatory Encouragement and Road Safety Initiatives
Regulators and transportation authorities are encouraging UBI programs as part of road safety and sustainability initiatives. By promoting responsible driving behavior, UBI aligns with broader policy goals of reducing traffic accidents, vehicle emissions, and congestion.
Incentivizing insurance discounts through safer driving has emerged as an effective tool to enhance public safety and reduce claim payouts.
4. Rise of Electric Vehicles and Mobility Services
The growing adoption of electric vehicles (EVs) and the shift toward shared mobility models such as ride-hailing, car subscription, and fleet services are accelerating demand for flexible insurance models. UBI allows insurers to cater to these evolving mobility patterns, offering scalable and usage-based solutions for both individual and commercial users.
Technology Trends
AI-Powered Risk Scoring and Claims Processing
Artificial intelligence (AI) and machine learning algorithms are being employed to analyze driving behavior, predict risks, and automate claims management. By transforming raw telematics data into actionable insights, insurers can streamline operations and enhance fraud detection.
Smartphone-Based Telematics
While dedicated on-board diagnostic (OBD-II) devices have been widely used for UBI programs, smartphone-based solutions are gaining popularity due to their lower cost and ease of deployment. These apps utilize GPS, accelerometers, and gyroscopes to track driver behavior, providing real-time feedback and convenience.
Connected Car Ecosystems
Automakers are increasingly embedding telematics modules directly into vehicles, enabling OEMs to offer insurance as a service (IaaS). This built-in connectivity supports real-time policy updates, remote diagnostics, and predictive maintenanceβadding significant value to UBI offerings.
Blockchain for Data Privacy and Security
To address consumer concerns over data privacy, some insurers are exploring blockchain-based platforms to ensure secure, transparent, and consent-based data sharing. Decentralized architectures offer a promising solution to enhance user trust and regulatory compliance.
Country-Wise Analysis
United States
The United States holds a leading position in the global UBI market, driven by high vehicle ownership rates, tech adoption, and a competitive insurance landscape. States such as California, Texas, and Florida have seen increased UBI program enrollment, particularly among millennials and gig economy drivers.
Consumer openness to data sharing in exchange for discounts, along with the proliferation of connected car services, is bolstering market growth. Insurers are also offering value-added services such as roadside assistance and driver coaching through mobile apps.
United Kingdom
The UK has emerged as a mature market for UBI, with wide-scale adoption among young drivers and urban commuters. PAYD and black box insurance policies have become commonplace, supported by favorable regulations and government-backed road safety campaigns.
UBI adoption is also being fueled by the rise of EVs and a focus on reducing carbon emissions, aligning with the UKβs net-zero transport goals.
Germany
In Germany, UBI is gaining momentum as insurers tap into the country’s robust automotive and telematics ecosystem. German drivers are increasingly adopting PHYD-based policies, particularly in the premium vehicle segment.
With the expansion of smart city infrastructure and connected vehicle integration, insurers are poised to offer hyper-personalized policies and real-time feedback tools.
China
Chinaβs rapidly evolving mobility landscape presents significant opportunities for UBI. The combination of urban congestion, mobile-first consumer behavior, and government support for smart transportation systems is accelerating UBI deployment.
Fleet operators, ride-hailing platforms, and EV users are among the primary adopters. Smartphone-based apps and in-vehicle systems are being used to deliver dynamic pricing and gamified driving feedback.
India
India is an emerging market for UBI, with strong potential due to its growing middle class, high accident rates, and rising smartphone penetration. Regulatory authorities are actively exploring frameworks to allow broader adoption of telematics insurance.
UBI programs tailored for two-wheelers, taxis, and delivery vehicles are gaining popularity, particularly in metropolitan areas with dense traffic and high fuel costs.
Japan and South Korea
Japan and South Korea are advancing UBI adoption through innovation in automotive telematics and data security standards. Both countries have high vehicle connectivity rates and a strong focus on smart mobility, making them fertile ground for AI-enabled UBI platforms.
Government initiatives aimed at aging drivers and traffic decongestion are further enhancing market opportunities.
Future Outlook
The global UBI market is on the cusp of a data-driven revolution. As connected vehicles become standard, and consumers demand more transparent and tailored policies, insurers will be compelled to shift from traditional underwriting models to real-time, behavior-based systems.
Between 2025 and 2034, the market is expected to expand from USD 91.16 billion to USD 570.44 billion, representing a CAGR of 22.6%. Key areas of innovation will include:
- Integration of autonomous vehicle data
- Usage-based pricing for commercial and delivery fleets
- Dynamic risk modeling with weather and traffic inputs
- Hyper-personalized services via digital insurance platforms
Conclusion
Usage-based insurance is reshaping the future of automotive insurance by putting the driver at the center of the pricing model. Powered by telematics, AI, and connectivity, UBI offers a smarter, fairer, and more flexible approach to coverage.
As mobility patterns evolve and technology matures, the global UBI market is set to experience sustained momentumβushering in a new era of insurance innovation that rewards safe, efficient, and responsible driving behavior.
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