UBI vs Traditional Car Insurance: A Head-to-Head Comparison for South Africans

PineChats

June 25, 2024
by
Team Pineapple

The beauty of life can be found in its evolutionary nature, kind of like car insurance (said no one ever, but bear with me). In this article, we're discussing the evolution of vehicle insurance by comparing traditional coverage with the new policy offering on the block— Usage-based insurance (UBI).

Content:

  1. Understanding UBI: How Does it Work?
  1. Traditional Car Insurance: A Breakdown
  1. UBI vs Traditional Insurance: A Head-to-Head Showdown
  • Cost Comparison: UBI vs Traditional Insurance
  • Coverage Comparison: UBI vs Traditional Insurance
  • Discounts and Rewards: UBI vs Traditional Insurance
  1. Who Should Consider UBI?
  1. Common Misconceptions About UBI Debunked
  1. Finding the Right Fit: UBI vs Traditional Insurance
  1. Finding the Right Fit: UBI vs Traditional Insurance
  1. Get a Free Car Insurance Quote
  1. Resources for South African Drivers

Understanding UBI: How Does it Work?

Picture yourself paying for car insurance based on how much you actually drive, not just who you are. Well, that’s basically how UBI works.

Usage-based insurance is a newer type of vehicle insurance policy. It operates on a pay-as-you-drive model that uses telematics technology to collect data on driving behaviour rather than one’s risk profile. 

Telematics technology typically involves installing a small device in your car or using a smartphone app to collect data about your driving habits. 

This data may include information like 

  • mileage, 
  • speed, 
  • braking patterns, 
  • acceleration, and 
  • time of day.

After analysing this data, car insurance providers can tailor monthly premiums to reflect a policyholder’s driving habits accurately. 

Keep in mind that not all UBI programmes track the above metrics. Some might focus on a core set, while others might offer a more comprehensive analysis.

Additionally, how data is weighted can vary; some telematics programmes might emphasise mileage more heavily than speeding.

The days of calculating car insurance premiums based on your age, demographic location, marital status, and the number of dependants may soon be numbered.

Usage-based insurance encourages accountability and safer driving practices, potentially resulting in savings for conscientious policyholders. This is also good news for drivers who hardly ever claim from their insurer: the safer you are and the less you drive, the lower your premium could be!

However, less-than-safe drivers might suffer the consequences of their vehicle handling skills. 

Should your telematics data show frequent speeding, harsh braking, or a lot of nighttime driving, your insurance company may consider you a higher risk and thus increase your monthly insurance premium.

During the claims stage, the data can help confirm details like the time and location of the accident, which can be helpful in processing your claim.

In other cases, the data might be used to investigate who caused the accident. 

For example, if you claim a rear-end collision, but your telematics data shows you were hard braking just before impact, it could raise questions about your role in the incident.

But before you fret, while the data can be used for investigation, the focus is typically on verifying the claim itself and not necessarily assigning blame.

Furthermore, insurance providers must comply with data privacy regulations. Meaning they can't use telematics data in ways that aren't explicitly disclosed in the policy agreement.

Traditional Car Insurance: A Breakdown

Traditional car insurance typically uses static factors to determine a policyholder’s monthly premium amount. These factors include, but are not limited to, a motorist’s age, location, vehicle type, and driving and insurance history. 

Unlike UBI, this already-established insurance type typically lacks personalisation. Instead, it offers standard policy options like liability or third-party protection and comprehensive coverage, which are still helpful motor insurance policies to have.

However, unlike UBI policies, traditional coverage doesn't require additional hardware or app installations. It relies on established, readily available factors. 

Additionally, traditional insurance also doesn't involve constant monitoring of your driving habits, which might be a privacy concern for some people.

And lastly, if you’re someone who drives a lot (for work or other reasons), traditional insurance policies might be more affordable. 

A table depicting the difference of UBI and traditional insurance when comparing different features

Cost Comparison: UBI vs Traditional Insurance

Premiums for usage-based insurance depend on a driver’s unique driving behaviour. So, motorists who usually don’t drive long distances and know how to handle the brakes smoothly have a reason to celebrate.

The potential for insurance savings is huge, provided you know how to keep your driving behaviour in check. The better you drive, the better your insurance rates.

As previously mentioned, insurance providers usually calculate traditional policy premiums based on static factors. Typically, the best way to get a good deal on your insurance premiums (aside from negotiating like a boss) is to have a good risk profile and a strong car insurance history.

Having an active car insurance policy over a long period and remaining claim-free works in your favour because it indicates responsible behaviour, suggesting lower risk.

Coverage Comparison: UBI vs Traditional Insurance

The difference in coverage between UBI versus traditional insurance policies is practically non-existent. UBI offers a similar level of core coverage as traditional insurance, protecting you against accidents, theft, and other unforeseen events.

Of course, ‘traditional insurance’ is a broad term that can be broken down into the different car insurance policy types offered by most insurance companies in South Africa.

These are, namely third-party only, third-party fire and theft and comprehensive cover.

  1. Third-party-only insurance is the most basic coverage, protecting you should you be held legally liable for accidents resulting in damage to a third party's property, injuries, or death.

  1. Third-party fire and theft is similar to the above policy type with added protection against loss due to theft, carjacking and fire.

  1. Comprehensive cover provides extensive protection against various risks beyond collision-related accidents. It protects your vehicle against theft, vandalism, natural disasters, collisions with animals, and even third-party liability.

Discounts and Rewards: UBI vs Traditional Insurance

Standard policies often incentivise policyholders with discounts based on their claims history. Depending on the insurance provider, rewards can include lower premiums, cashback options, or other benefits like emergency accommodation and discounts on other insurance products.

UBI can potentially offer similar perks, but it goes the extra mile by including the added benefit of rewarding excellent driving behaviour.

Who Should Consider UBI?

The real question is, “Who wouldn’t want insurance made exclusively for them?” 

Usage-based insurance is ideal for motorists who primarily use their cars for weekend errands, occasional commutes, or short distances. This insurance type is best suited for low-mileage, safe drivers looking to save on premiums and those who prefer an individualised insurance experience.

Additionally, drivers with no claim records can also potentially benefit from UBI's dynamic pricing structure.

If you’re constantly on the road or live in a high-crime area where comprehensive coverage might be a better fit, traditional insurance might be a better choice.

Overall, UBI aims to create a fairer system that rewards safe driving rather than relying solely on factors like age, gender, or location.

Common Misconceptions About UBI Debunked

Usage-based insurance is a relatively new concept in the South African car insurance industry. So new, in fact, that not many insurers offer it as a product. 

However, its focus on rewarding safe driving habits is quickly gaining traction. And along with the excitement comes a wave of misconceptions.  

Let's clear the air and explore some common myths debunked:

Myth #1: UBI stands for Universal Basic Income

This is actually true. The abbreviation UBI stands for both ‘universal basic income’ and ‘usage-based insurance’. But since this article focuses solely on vehicle insurance in South Africa, hopefully, it’s clear which phrase we’re referring to. 

Understanding usage-based insurance starts with asking, “What is UBI?” The answer is that UBI is a new insurance policy type that tailors your monthly premium to your actual driving habits instead of relying on traditional, static factors like age, location, or marital status.

Myth #2: UBI is a privacy nightmare!

A common misconception about usage-based insurance is that it invades personal privacy. UBI systems are designed to collect specific driving-related data, focusing on factors like acceleration, braking, and speed. However, the data omits any details unrelated to your driving habits.

Myth #3: UBI will cause my premiums to skyrocket if I'm not a perfect driver.

Sure, UBI rewards safe driving habits, but occasional speeding or a late-night drive won't automatically disqualify you (not that we’re encouraging either).  Most usage-based insurance programmes use a tiered system where you're categorised holistically based on your driving behaviour. So, safe drivers might see significant discounts, and those with riskier habits might see a slight increase.

Myth #4: UBI technology is unreliable or invasive.

Concerns about the security of telematics devices are common and understandable. However, the installation of UBI technology is usually simple, and the devices themselves are unobtrusive. They track your driving data but do not record conversations or your location when you're not driving.

Myth #5: Switching to UBI is a simple process with many providers offering it.

Switching to usage-based insurance might not be the most uncomplicated process for South African motorists. This is mainly because few insurance providers offer this policy as a stand-alone option. Therefore, it’s essential to research which providers have UBI options and carefully consider the specific requirements and enrollment procedures before making the switch. 

For now, insurers like Pineapple offer savings options like Drive Less Get Blessed (up to 30% of your premiums back for driving under 300km monthly) and Santam with SmartPark™ (up to 20% savings if you drive less than 15 000km a year) as a way to reduce insurance premiums.

Finding the Right Fit: UBI vs Traditional Insurance

There will come a time when usage-based insurance is offered as an insurance policy throughout the country. When that time comes, motorists will have to decide between the tried-and-tested methods of traditional insurance policies or venturing on the road less travelled and opting for UBI coverage.

The choice will undoubtedly come down to your individual driving habits and needs. 

And when choosing between UBI and traditional insurance, comparing quotes and considering individual driving habits will be essential. 

Insurance stalworth Old Mutual is leading the pack by being one of the first local insurers to offer usage-based cover. 

By developing a WhatsApp Chatbot (aptly called UBI), they aim to give policyholders the option to save on their monthly motor insurance premiums. 

Luckily, Pineapple’s insurance quotes only take about 90 seconds to complete–less if you’re fast. Click here to test how fast (or slow) you can get a quote for comprehensive car insurance in South Africa now!

If you’re still battling feelings of trepidation, tag a professional to assist you. 

Consulting a qualified insurance professional or sales agent can also help you navigate your options and make an informed decision. 

Get a Free Car Insurance Quote!

Have you heard enough, and are ready to board the insurance train? That’s what we like to hear! 

Click here for an obligation-free quote. 

Discover the benefits of Pineapple's comprehensive insurance coverage tailored to your driving needs. 

Pineapple protection means your car is safeguarded against fire, theft, accidental damage, and more, plus added benefits like roadside assistance and DriveLessDiscount; Pineapple has you covered.

Resources for South African Drivers

For important yet credible insurance news, South African drivers can consult websites such as the South African Insurance Association (SAIA), which is “the representative body of the non-life insurance industry.” 

To ensure a sustainable and dynamic industry, the association represents the insurance industry to all relevant stakeholders.

Members of the SAIA are expected to uphold the group’s Code of Conduct, which ensures adherence to best-practice industry standards and self-regulation. 

This is great news for the future of insurance; the SAIA’s strict standards almost guarantee collaboration with regulatory bodies in developing industry standards for data collection, privacy protection, and risk assessment practices in UBI programmes. 

Motorists can breathe easier knowing such collaboration will create a more transparent and trustworthy environment for UBI adoption.

Furthermore, the SAIA can help ensure a smooth transition for consumers who might still hesitate to switch from traditional insurance to UBI.

Download Pineapple’s Free Guide to Car Insurance in South Africa

Conclusion

By comparing their features and benefits, you can make an informed decision about any insurance policy and how best it suits your individual needs. Not to mention your driving habits.

And whatever your feelings regarding UBI, there’s no denying one undeniable truth: usage-based coverage promises to transform the insurance industry by promoting fairness, accountability, and road safety.

However, if you’re still team old school, that’s fine too.

Standard insurance policies have lasted for a reason, and their protection and financial peace of mind are priceless. Not literally, of course; insurance premiums are still a thing after all.

Speaking of which, quote with Pineapple, maybe?

Our comprehensive insurance coverage protects against fire, theft, accidental damage, third-party accidents, and even weather events. 

Plus, you get 24/7 roadside assistance and other valuable benefits!

Take control of your car insurance with Pineapple’s personalised quote in under 90 seconds! No hassle, just fast and easy insurance.

Please Note: The information provided above is for informational purposes only; you should not construe any such information as legal or financial advice.

Pineapple (FSP 48650) is underwritten by Old Mutual Alternative Risk Transfer Insure Limited, a licensed Non-Life Insurer and authorised FSP. T&Cs apply.

Team Pineapple

Team Pineapple comprises our company’s top talents, who are dedicated to creating clear, high-quality content on essential vehicle insurance topics. This diverse group, including actuaries, accountants, data scientists, and insurance professionals across South Africa, collaborates to produce enlightening and empowering articles.

Each piece is thoroughly researched, factually accurate, and rigorously reviewed to ensure quality.

*We say they’re the finest because we want them to keep writing for us!

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Disclaimer

Please Note: The information provided above is for informational purposes only; you should not construe any such information as legal or financial advice.

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