What is Usage-Based Insurance?

Usage-based insurance is an insurance model where premiums are calculated based on how much, how often, and how safely an asset is used, rather than charging a fixed annual fee.

This is the core benefit of adaptive insurance. Instead of a flat annual fee, premiums can be calculated based on actual trip or task volume, and in the case of car fleets, even the real-world driving behaviour score of the specific user. This ensures that unused assets cost less to insure and that safer driving is financially rewarded.

Instead of paying for maximum theoretical risk, businesses pay for actual, real-world usage.  

This model is especially relevant for platform businesses such as:

• Micromobility operators
• Car-sharing platforms
• Fleet operators
• Gig economy marketplaces
• Delivery and logistics companies

As the platform economy grows, traditional insurance pricing struggles to keep up, and usage-based insurance steps in to fill in the gaps. 

Why Traditional Insurance Fails to Work for Platform Businesses

Most legacy insurance models were built for static risk covering:

• One driver
• One vehicle
• Predictable usage
• Fixed annual premiums

The game has changed. Platform businesses don’t work that way.

The fleet size changes with demand. Users come and go. Vehicles are active at different times of the day, in different locations, under different conditions. Yet traditional insurance still charges as if everything is fully active all the time.

This leads to:

• Overpaying during low-usage periods
• Undercoverage during peak demand
• Inflexible contracts
• Poor alignment between insurance costs and revenue

For startups and fast-scaling platforms operating on tight margins, this becomes a bottleneck on the path of growth.

Traditional Insurance Vis-à-Vis Usage-Based Insurance 

Traditional insurance relies on fixed annual premiums that assume constant, full-time usage, regardless of whether assets are active or idle. Risk is assessed upfront using static assumptions, which means businesses often pay to insure vehicles or workers that are not actually generating revenue. Data integration is limited, adjustments are manual, and pricing rarely reflects real-world behavior.

Usage-based insurance works differently. Premiums flex based on real usage, such as trips completed, time on the road, or task activity. Risk is assessed continuously using real world data, so inactive assets cost less to insure while active ones remain fully covered. Pricing adapts around usage changes, supported by integrated data and analytics that give platforms clearer visibility and control over their insurance distribution.

What Is Usage-Based Insurance in Practice?

Usage-based insurance links insurance coverage directly to real-world habits. If a vehicle or user is inactive, insurance costs adapt. On the contrary, if activity increases, coverage scales automatically to match demand. This makes insurance adaptive and reduces the burden on payers. 

How Usage-Based Insurance Supports Adaptive Insurance

Usage-based insurance is the pillar on which adaptive insurance stands strong.

Adaptive insurance leverages technology, data, and automation to continuously align coverage with real-world operations. Usage-based pricing is what allows this alignment to stay fair, stable, and scalable.

An adaptive insurance platform like Cachet:

• Tracks usage patterns across fleets
• Adjusts premiums dynamically
• Identifies emerging risk trends, and
• Supports proactive decision-making

Instead of insurance being a fixed cost, insurance at Cachet is a risk-control system that rewards users with savings and peace of mind. 

Key Benefits of Usage-Based Insurance for Platforms

If you’re opting for Usage-Based Insurance, you have nothing to lose:

1. Real Estimate vs. Assumed Pricing 

If assets are not generating revenue, insurance costs should not stay high.

Usage-based insurance ensures:

• Idle vehicles cost less
• Seasonal fluctuations don’t inflate premiums
• Growth doesn’t introduce hidden insurance risk

This alignment protects margins and improves forecasting.

2. Proactive Risk Management

Modern usage-based insurance platforms integrate:

• Fleet analytics
• Claims history
• Driving behavior data
• Location-based risk insights

With AI-supported analytics, operators can:

• Identify high-risk drivers
• Detect problematic routes or locations
• Intervene before incidents become claims

This shifts insurance from passive protection to active risk prevention.

3. Better Claims Outcomes

When claims data is integrated into the same system that tracks usage, platforms gain:

• Faster FNOL (First Notice of Loss)
• Clearer claims visibility
• Reduced downtime for damaged assets

Getting vehicles back on the road faster directly impacts revenue.

4. Easier Scaling and Compliance

Platform businesses scale unevenly. Insurance must keep up without creating exposure gaps.

Usage-based insurance supports:

• Automatic coverage scaling
• Confidence during peak demand
• Simplified compliance across regions
• API-based integration with existing systems

This ensures less friction and more growth.

Who Is Usage-Based Insurance Best Suited For?

Usage-based insurance is particularly valuable for:

• Car-sharing platforms with fluctuating demand
• Micromobility operators managing large fleets
• Gig economy marketplaces with variable user activity
• Fleet operators optimizing utilization
• Mobility startups expanding into new regions

Any business where usage is dynamic benefits from this model.

Use Case: Usage-Based Insurance for a Gig Platform

The challenge

A gig platform connects independent workers to short-term tasks such as deliveries, ride services, or on-demand labor. Activity levels vary widely since workers log in and out unpredictably, demand peaks during specific hours or seasons, and risk exposure changes with task type and location.

Traditional insurance models assume continuous exposure, with undesirable consequences like overpaying for inactive workers and the inability to determine correct coverage at all times. There is limited visibility into risk patterns across the workforce. These limitations lead to rising costs and compliance risk.

What’s different with Cachet?

A lot changes when you work with Cachet. Our clients can add and remove assets directly within Cachet Mobility. They can distribute and redistribute insurance as needed across their fleet within he platform. The result is a seamless way to keep coverage aligned with asset (users or bikes, or cars, etc) count without having to send CSVs, Slack, and emails to your insurer. Reducing the risk of under-coverage or over-coverage. 

Usage-Based Insurance as a Competitive Advantage

Insurance is no longer just a legal requirement.

For operators who embrace usage-based insurance as part of an adaptive insurance strategy, it becomes a differentiator.

Platforms like Cachet can:

• Lower operating costs
• Improve risk control over time
• Offer safer, more reliable services
• Build trust with users and partners
• Help micromobility businesses or gig workers scale without insurance, becoming a bottleneck

In competitive markets, this operational edge matters.

FAQs

What is usage-based insurance in simple terms?

Usage-based insurance means you pay insurance premiums based on how much and how safely an asset is used, rather than paying a fixed annual price.

How is usage-based insurance calculated?

Usage-based insurance is calculated using factors such as the number of trips completed, the distance driven, the time the vehicle is in use, vehicle activity, and driving behavior data.

Is usage-based insurance only for vehicles?

No. While usage-based insurance is commonly used for vehicle fleets, the model also applies to gig work, delivery platforms, and other usage-driven activities.

Is usage-based insurance cheaper?

Usage-based insurance is often more cost-efficient than traditional insurance because you’re not paying for idle or low-risk periods. Costs are calculated on actual exposure.

What is the difference between usage-based insurance and adaptive insurance?

Usage-based insurance focuses on pricing linked to usage. Adaptive insurance builds on that by using technology, analytics, and automation to manage risk continuously. Predicting and preventing negative outcomes at scale. 

Is usage-based insurance suitable for startups?

Yes. Usage-based insurance is particularly valuable for startups that often struggle with problems like fluctuating demand, limited margins, and fast-changing risk profiles.

Whether you operate in micromobility, manage car fleets, support gig work, or run car-sharing services, Cachet makes insurance manageable, predictable, and flexible.