New Ways to Deliver, New Ways to Price Insurance

With the explosion in last-mile delivery and other types of shipping, insurance companies are looking at alternative ways to price their coverage.

Specifically, demand for last-mile delivery, parcel-courier delivery, rideshare services and mobile delivery (think scooters and bicycles) has skyrocketed since the beginning of the COVID-19 pandemic. Insurers haven’t entirely caught up.

Adapting to market conditions

Carriers are adapting their premium pricing structures to these different types of delivery. Driver behavior will be a critical component of the commercial insurance application process.

From transportation companies’ point of view, technology has long been part of the solution to finding drivers and improving safety. In-cab data can inform ways to improve efficiency across a fleet by optimizing routes, reducing accidents and providing targeted support to drivers that need it.

But for insurance carriers, technology has improved the accuracy of their pricing based on much more than just a driver’s motor vehicle record (MVR) and credit score. Traditional insurance pricing models won’t suffice when technology exists as a better measure of driver behavior and incident rates.

In fact, insurance pricing for last mile and other types of transportation will ultimately depend on technology to determine driver behaviors such as rapid acceleration, hard braking, distracted driving and cell phone usage.

Different pricing models for different types of transportation

Each delivery mode has distinct ways of operating. Insurance is soon going to be priced to match it. Here’s how it’s likely to play out:

Last-mile delivery: Globally, last mile delivery market was valued at $108.1 billion in 2020 and is expected to reach $200.4 billion by 2027.¹ Insurance carriers are trying to keep up. Pricing models for this segment include usage-based insurance (UBI), with carriers charging per mile, per trip or per day. Carriers are also tying rates to the delivery on a revenue basis.

Parcel-courier delivery: Regional shopping centers and specialty stores now partner with local services for quick delivery. New insurance models for this segment will be tailored based on mileage, trip, route or stops based on in-vehicle tech.

Rideshare: Uber, Lyft and other rideshare companies have made it easy for people to use their personal vehicles for business. While a rideshare insurance policy is currently required for all drivers, insurance carriers are considering pricing by intervals. For example, one interval is when the driver is waiting to drive for hire, a period that carries reduced exposure; another interval starts when the passenger is in the vehicle. Leveraging technology to price accordingly, UBI may be one answer.

Mobility: Paratransit and delivery by scooter or bike, for example, has also risen in popularity, with more use cases for mobility to model insurance pricing. Developing a scalable insurance policy for mobility will likely include distinctions for short trips and different legs of a trip, all relying on data coming directly from the vehicle.

Contact your HUB Transportation expert for more information on new pricing structures for last mile, parcel-courier, rideshare and mobility businesses.

¹ Brand Essence, “Last Mile Delivery Market Size By Service Type,” September 2021.