IDEAS home Printed from https://ideas.repec.org/a/taf/uaajxx/v26y2022i3p428-455.html
   My bibliography  Save this article

Usage-Based Insurance—Impact on Insurers and Potential Implications for InsurTech

Author

Listed:
  • Xin Che
  • Andre Liebenberg
  • Jianren Xu

Abstract

Insurers are increasingly embracing the InsurTech ecosystem. The most important InsurTech-related trend in automobile insurance is usage-based insurance (UBI), which enables insurers to access and incorporate drivers’ behavioral risk factors in actuarial pricing. Using a difference-in-difference research design with firm fixed effects, we provide evidence that UBI improves private passenger auto liability (PPAL) insurers’ underwriting performance by reducing their loss ratio. However, the improvement in underwriting performance is only significant among early UBI adopters, highlighting the early-mover advantage in InsurTech. Also, UBI produces benefits only when it matures. Our findings are robust to analyses that address potential reverse causality and self-selection bias. Additional tests show that early UBI adopters experience a significant increase in their market share, implying UBI’s advantage to attract low-risk drivers from other insurers. The overall performance effect of UBI programs for early adopters is a 1% increase in ROA and a 3% increase in ROE. The policy implications of our findings from the perspective of insurers should be of interest to firms’ management, actuaries, investors, and rating agencies.

Suggested Citation

  • Xin Che & Andre Liebenberg & Jianren Xu, 2022. "Usage-Based Insurance—Impact on Insurers and Potential Implications for InsurTech," North American Actuarial Journal, Taylor & Francis Journals, vol. 26(3), pages 428-455, August.
    • Handle: RePEc:taf:uaajxx:v:26:y:2022:i:3:p:428-455
    DOI: 10.1080/10920277.2021.1953536
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/10920277.2021.1953536
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/10920277.2021.1953536?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhiyu Quan & Changyue Hu & Panyi Dong & Emiliano A. Valdez, 2024. "Improving Business Insurance Loss Models by Leveraging InsurTech Innovation," Papers 2401.16723, arXiv.org.
    2. Chang, Vincent Y.L., 2023. "Do InsurTech startups disrupt the insurance industry?," Finance Research Letters, Elsevier, vol. 57(C).
    3. Serkan Eti & Hasan Dinçer & Hasan Meral & Serhat Yüksel & Yaşar Gökalp, 2024. "Insurtech in Europe: identifying the top investment priorities for driving innovation," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-24, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:uaajxx:v:26:y:2022:i:3:p:428-455. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/uaaj .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.