Technology has impacted our daily lives in many ways. From healthcare and manufacturing to education, finance and insurance, technology has brought new developments to promote personalization and improve the customer experience.
In the insurance industry, insurance companies have traditionally calculated premiums based on the make, model, age of the car, and other similar factors. Premium rates for cars of the same make and model were similar. It sounded good, but the premium price didn’t take into account the most important aspect.
And the driver? What about drivers with speeding tickets, more claims, higher accident rates or collisions? Not everyone drives the same way, so why should the insurance premium be the same depending on the specification of the car?
Back then, it would have been almost impossible to collect, process and evaluate driver driving behavior without technology. Telematics was still used, but not on a large scale, by insurance companies to identify and separate low-risk and high-risk drivers based on their behavior on the road.
What is Telematics?
Telematics is an automotive communication technology that uses a combination of tools and applications to capture vehicle information and share it with 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 grow to $13.78 at a CAGR (compound annual growth rate) of 19.5% here 2030.
Telematics relies on data collected from the device in the vehicle. This can be the GPS tracker or any other device that collects information. A 2019 consumer survey showed that around 30-40% of users were comfortable sharing their location and driving data with insurers. This percentage increased to 50% in 2020. Even if there are not enough registrations for insurance telematics, it will not be long before telematics becomes an important means of personalizing insurance coverage. insurance and reduce premiums.
Role of telematics in the auto insurance industry
Car insurance is a must in every state/region. Being uninsured is not an option if people want to drive their cars, trucks and vehicles. The ultimate goal of every car owner/driver is to find the cheapest car insurance. Affordable, low cost, cheap, lower premium price, etc. are the keywords used when searching for an insurance company or insurance agent.
Telematics helps reduce premiums for safe or low-risk drivers. While this may result in a higher premium for those who have had more accidents, telematics may also encourage them to be more careful and become better drivers. After all, a better driver gets a cheaper insurance premium.
Telematics has led to a new way of calculating premiums and liability. Called usage-based insurance, auto insurers determine premiums in four ways:
● Pay As You Drive (PAYD) Insurance
PAYD is a comprehensive insurance plan that allows drivers to customize the policy to suit their needs. Simply put, those who use the vehicle more pay more and vice versa.
● Pay How You Drive (PHYD) Insurance
PHYD is an auto insurance plan where driver behavior and history are used to determine the premium amount. Good drivers can get cheap vehicle insurance from the cheapest provider in the market.
● Insurance based on distance
Insurance coverage is calculated based on the number of miles flown during the insurance period. Take an average of the miles driven and the number of years/months you have owned the vehicle.
● Check your driving insurance (CYD)
Like the previous three auto insurance plans, CYD also allows users to decide the premium price based on their driving and needs.
Benefits of telematics in the auto insurance industry
- Telematics helps insurance companies reduce the liability of paying multiple claims while giving drivers a meaningful chance to negotiate personalized and affordable auto insurance.
- It streamlines the entire process of obtaining insurance and increases transparency. There will be less friction and misunderstandings between the insurer and the insured.
- Insurers can improve their customer service capabilities by accessing historical and latest vehicle and driver data.
- Drivers who do not have a speeding ticket or who have not suffered any bodily injury due to a traffic accident or collision can take advantage of their driving history to reduce the premium payment .
- As more and more people become aware of telematics, they will start to be responsible when driving. This will reduce accidents, traffic jams and road rage incidents.
- Non-driving factors such as credit scores, vehicle manufacturer, etc. will not be given too much importance when calculating the premium.
Insurance telematics is reshaping auto insurance by effectively merging technology with finance and human behavior. It makes the whole system more transparent and increases driver safety.