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Effect of Annual Mileage on Usage-Based Motor Insurance Premiums

Abstract

The study examines the effect of annual mileage on usage-based motor insurance premiums, focusing on how the distance travelled by insured vehicles within a given year influences the premiums charged under usage-based insurance arrangements. Annual mileage is an important exposure measure in motor insurance because vehicles that are driven more frequently may have greater exposure to road accidents and potential claims. Understanding the relationship between mileage and insurance premiums is therefore relevant to actuarial risk assessment and premium determination. The study will investigate how variations in annual mileage affect usage-based motor insurance premiums. It will examine whether differences in the distance travelled by policyholders are associated with corresponding differences in premium levels. The study will also assess how mileage-based exposure measures can be incorporated into the pricing of motor insurance policies. The analysis will focus on annual mileage, vehicle usage, claim frequency, claim severity, expected losses, and usage-based insurance premiums. Actuarial pricing techniques will be applied to estimate expected claims exposure across different mileage categories. Statistical analysis will be used to examine variations in premium levels associated with different annual mileage patterns. A quantitative research approach will be adopted for the study. Relevant motor insurance policy, mileage, claims, and premium data will be analysed using descriptive statistics, correlation analysis, regression techniques, and actuarial loss estimation methods. Comparative analysis will be conducted across different annual mileage categories to determine the relationship between vehicle usage and usage-based insurance premiums. The study is expected to reveal that annual mileage has a measurable effect on usage-based motor insurance premiums. Higher annual mileage may be associated with greater expected claims exposure and consequently higher premium requirements, while lower mileage may correspond with reduced exposure and lower premium levels. The strength of the relationship is expected to vary according to the underlying claims experience and risk characteristics of the insured vehicles. The findings are expected to provide useful information for insurers and actuaries in developing mileage-sensitive premium structures for usage-based motor insurance. The study may support more accurate measurement of vehicle exposure and improve the alignment between premiums and expected losses. It may also provide a basis for evaluating annual mileage as an actuarial rating factor in motor insurance pricing. The study concludes that annual mileage is an important exposure measure in the determination of usage-based motor insurance premiums. It is therefore recommended that insurers incorporate reliable mileage information and appropriate actuarial techniques into usage-based pricing models to ensure that premiums adequately reflect differences in vehicle usage and expected claims exposure.

Keywords: Annual mileage, usage-based motor insurance, motor insurance premiums, vehicle usage, mileage exposure, insurance pricing, claim frequency, claim severity, expected losses, actuarial pricing, risk assessment, premium determination, usage-based insurance, mileage-based rating, motor insurance claims.