Customer acceptance of usage-based motor insurance policies in Sri Lanka

Abstract

Motor insurance segment which accounts for a larger portion of the Gross Written Premium (GWP) of non-life insurance industry in Sri Lanka, is currently facing challenges such as increasing claims ratio, reduced switching costs, and intense completion, threatening both short and long-term profitability as well as sustainability of the industry. Usage-Based Insurance (UBI) is a relatively new concept mostly used in developed countries to overcome such challenges. In UBI the premium is calculated based on the level of risks the insured vehicle is involved with. If the vehicle is driven in a way, that is less prone to accidents, the premium is expected to be reduced and vice versa if not. This encourages policyholders to use their vehicles in a safer manner. However, drivers’ interest in UBI seems to vary across countries with different policy models and contexts. Therefore, this study explores the Sri Lankan drivers’ perception on accepting UBI policy schemes. 295 responses were collected from both online and printed forms which were analyzed using Structured Equation Modeling against the conceptual framework developed based on the Technology Acceptance Model. It was identified that the direct determinants of customers’ acceptance of UBI are perceived individual benefits and concerns regarding the current premium calculation method. Moreover, UBI is preferred by the younger customers, and those who use their vehicles less and have involved in less accidents. Furthermore, if an insurer launches a UBI policy scheme, many drivers are willing switch to that insurer. It was also identified that privacy concerns were not a significant determinant for accepting UBI in the Sri Lankan context, though studies conducted elsewhere indicate so. Hence, this study indicates that Sri Lankan customers will accept UBI policy schemes if the insurers target the proper customer segments, emphasizing on the individual benefits.