Technology has impacted our daily lives in numerous ways. From healthcare to manufacturing to the education, finance, and insurance industry, technology has brought new developments to promote personalization and increase customer experience.
In the insurance industry, insurance companies have traditionally calculated premiums based on the make, model, age of the car, and other such factors. The premium rates for cars of the same brand and model were similar. That sounded good, but the premium price didn’t factor in the most important aspect.
What about the driver? What about drivers with speeding tickets, more claims, higher accident rates, or collisions? Everyone doesn’t drive the same way, so why should the insurance premium be the same based on the car’s specifications?
Back then, it would have been almost impossible to collect, process, and evaluate the driver’s driving behavior without technology. Telematics was still in use, but not on a large scale required by the insurance companies to identify and segregate low-risk and high-risk drivers based on their on-road behavior.
What is Telematics?
Telematics is an automotive communication technology that uses a combination of tools and apps to capture the vehicle’s information and share it with the insurers. Telematics uses GPS, Wi-Fi/ Bluetooth, GSM, RF, Engine Control Unit, and cloud servers to collect, store, process, and analyze data.
Allied Market Research published a report that the global insurance telematics industry with $2.37 billion in 2020 would reach $13.78 at a CAGR (Compound Annual Growth Rate) of 19.5% by 2030.
Telematics relies on the data collected from the device in the vehicle. It could be the GPS tracker or any other device that gathers information. A consumer survey in 2019 showed that around 30 to 40% of users were comfortable sharing their location and driving data with insurers. This percentage rose to 50% in 2020. Even though there isn’t enough enrollment for insurance telematics, it won’t be long before telematics is a prominent way to personalize insurance coverage and lower premiums.
Role of Telematics in the Auto Insurance Industry
Auto insurance is a must in every state/ region. Being uninsured is not a choice if people want to drive their cars, trucks, and vehicles. The ultimate aim of every car owner/ driver is to find the cheapest auto insurance. Affordable, low cost, cheap, lower premium price, etc., are the keywords used when searching for an insurance company or an insurance agent.
Telematics helps lower premiums for safe or low-risk drivers. While it can lead to a higher premium for those who have been in more accidents, telematics can also nudge them to be more careful and become better drivers. After all, a better driver gets a cheaper insurance premium.
Telematics led to a new way of calculating premiums and liability. Termed Usage-Based Insurance, auto insurers determine the premiums in four ways:
● Pay As You Drive Insurance (PAYD)
PAYD is a comprehensive insurance plan that allows drivers to customize the policy based on their requirements. In simple terms, those who use the vehicle more pay more and vice versa.
● Pay How You Drive Insurance (PHYD)
PHYD is an auto insurance plan where the driver’s behavior and history are used to determine the premium money. Good drivers can get low-cost vehicle insurance from the cheapest provider in the market.
● Distance-Based Insurance
The insurance coverage is calculated for the number of miles you travel during the insurance period. Take an average of the miles driven and the number of years/ months you owned the vehicle.
● Control Your Drive Insurance (CYD)
Like the previous three vehicle insurance plans, CYD also allows users to decide the premium price based on their driving and requirements.
Advantages of Telematics in the Auto Insurance Industry
- Telematics helps the insurance companies reduce the liability of paying for multiple claims while also giving drivers a concrete chance to bargain for personalized and affordable car insurance.
- It streamlines the entire process of getting insurance and increases transparency. There will be less friction and miscommunication between the insurer and the insured.
- Insurers can improve their customer servicing abilities by accessing historical and latest data about the vehicle and the driver.
- Drivers who don’t have a speeding ticket or haven’t suffered any bodily injury due to a driving accident or collision can take advantage of their driving history to reduce premium payment.
- As more people become aware of telematics, they’ll start to be responsible when driving. This will decrease accidents, traffic jams, and road rage incidents.
- Non-driving factors such as credit ratings, the vehicle’s manufacturer, etc., will not be given too much importance when calculating the premium.
Insurance telematics is revamping auto insurance by effectively merging technology with finance and human behavior. It makes the entire system more transparent and increases driver safety.