How Telematics is Shaking Up the Car Insurance Industry
What Is Telematics?
Telematics - An Overview
Telematics are systems which are designed to track and monitor vehicles. The term comes from a blending of the 2 disciplines involved in the technology - telecommunications and informatics.
Telematics systems may be deployed for a wide variety of purposes including emergency services, fleet management and even insurance. Such systems can not only track the precise location of a vehicle, but they can also gather important data about the conditions of the car (faulty brake lights, fuel consumption, etc) and driver behavior (sudden braking, acceleration speed, etc).
How Do Telematics Work?
Collection Devices
Collection methods in vehicles may vary depending on the model and make of the car. Car models that are 10 years or younger often have built-in devices that can collect important data about the car and the driver. These may record the data internally or transmit it to a remote server via satellite.
Drivers without built-in devices may still implement telematics systems via a device which plugs into the cars on board diagnostic (OBD-II) port. Such a system pairs with a smartphone to collect data and send via your cellular phone network.
Mobile App
A third option for data collection is strictly through a mobile app. Smartphones are already able to pinpoint your exact location, store information about where you’ve recently been, and also allow you to communicate using a radio receiver. Advantages of these singular apps is that they are very inexpensive for companies to implement and most individuals are already familiar with using them. Disadvantages of a strictly mobile app system is that since it doesn’t interface directly with the vehicle, it is limited in the type of data it can collect.
How Does This Affect the Car Insurance Industry?
What Type of Data is Collected?
Every carrier is different in exactly what information they are collecting. Most commonly they are looking for total miles driven, safe driving habits like hard breaking or fast accelerations, driving at times when accidents are more likely to occur (late at night). Some carriers also monitor speed and or GPS data.
How Insurance Companies Use this Data
Safe Driving Discounts
Currently insurance companies value the data they are collecting and provide a discount to the customer for participating. Most carriers are providing a small discount to driver just for signing up and participating in their telematics program. There is then a monitoring period in which the carrier collects date (most commonly 3 – 6 months). Finally, an earned discount is applied to the policy based on the results earned during that monitoring period. At this time most telematics programs can only help the customer by providing a discount.
Usage Based Insurance
Many people in the industry anticipate as telematics become more widely used, we will eventually see carriers both providing discounts and surcharges based on results. We are already seeing some carriers roll out a “pay-per-mile” option in which your rate fluctuates both up and down based on miles driven.
What Does This Mean For You?
Pros and Cons
The biggest Pro is those that deserve a lower car insurance rate will receive it. Since most programs are opt-in at this time, you can choose a program that benefits you the most (miles focused, safe driving factors focused or not at all). Other Pro’s are driving habit awareness. You typically get updates on your driving results. Those results can be used for self-awareness of bad habits or to monitor driving habits of say a young driver in your family.
The only concerns customers have had to date are Privacy Concerns. They would be the same privacy concerns you would have with any app on your phone; however, insurance companies are held to very high privacy standards. We also hear concerns about “big brother” invading your privacy. The reality is you are already providing most of this data to other vendors (google maps, ways, ect.). This is the best way for insurance carriers to provide you with a more individualized rate, which is something most customer prefer.
Conclusion
Telematics are both the present and future of the car insurance industry. Telematics are a method of collecting data on driving habits, that insurance carriers can use to provide discounts or more individualized car insurance rates. This data is most commonly collected via an app on your phone, while some carriers also utilize a physical plug in device (OBD Port). We are also now seeing some new vehicles with technology built in that insurance carriers can access directly with the owner’s permission.