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As a follow-up to my presentation last week, I would like to elaborate on how telematics can be used in real life, specifically in the auto insurance industry. Telematics technology in insurance is commonly known as usage-based insurance, which are customized insurance programs that give the drivers the option of paying a premium based on the miles they drive and/or their driving behavior. These programs give drivers the financial incentive to drive less and to drive more carefully.
The concept of using how much you drive and how you drive to determine your insurance premium is nothing new. When you’re getting a quote for a policy, the insurance would ask you whether you drive to work every day or only drive on the weekend – which is essentially measuring how much you drive. The company also pulls your MVR (motor vehicle report) to see how many accidents you’ve been in, license restrictions, etc. – which is measuring how you drive. But with telematics technology, it allows the insurance company to better risk assess the customer and give more accurate pricing for the customer. It is also allowing the customer to potentially pay less premium on their auto insurance policy.
- Good drivers can get discounted rate based on their safe driving behavior data collected from the telematics device
- Usage-based programs help minimize the potential unfairness of auto insurers pricing rates based on non-driving factors such as credit score or location by using more relevant driving behavior data
- Drivers are incentivized to drive less, alleviate wear and tear, reduce the likelihood of an accident, and help reduce carbon emissions
- Drivers who drive long distance as daily commute wouldn’t benefit from usage-based insurance
- Those who work night shifts and commute at night would get relatively higher rates
Three examples of usage-based insurance offered by top insurers:
Progressive’s usage-based option is called Snapshot, it is currently available in all states except for California and North Carolina. Drivers can choose between a plug-in device or a mobile app to record their driving habits – including miles driven, time of the day, hard braking incidents, or hard- cornering incidents. The company evaluates the data collected for 30 days, and if the customer qualifies for a discount it will be applied to the policy
Allstate’s program is called Drivewise, and it is available in all states except for New York. Rather than using a device plugged into the car, their program uses a mobile application to track speed, mileage, hard braking, and other driving habits. Because they use a mobile app rather than a device, the customer will need to manually delete trips when they’re not the driver.
Liberty Mutual Insurance offers a program called RightTrack, which uses a combination of telematics devices and mobile app. During the first 90 days of enrolling in the program, the customer will drive with the device plugged into the car, which tracks braking, acceleration, nighttime driving, and how many times driven. At the end of 90 days, the customer will get a discount between 5% to 30% on the auto policy.
As for the insurers, they must manage different states’ regulatory requirements when it comes to data collected by telematics technology. Many states require the insurance company to obtain approval for new rating plans, which usually include statistical data that supports the proposed rating structure. With so much data that telematics technology is capable of collecting, it comes with privacy concerns. Some states have enacted legislation requiring disclosure of tracking practices and devices.
In order for usage-based insurance to become more mainstream, drivers also need to be willing for their auto insurance to be determined by how they drive. According to a Willis Tower Watson Survey, 93% of millennial respondents agree that usage-based insurance is the better way to calculate their premium compared to traditional ways. After all, most new cars nowadays are already connected to the internet either via an in-car or self-installed system.
The willingness of different age groups to share recent driving data for personalized insurance quotes:
Of the drivers who have used usage-based insurance, most had a positive experience with the technology:
It is almost certain that telematics technology will be the future of auto insurance. Perhaps not everyone is going to benefit from a usage-based insurance policy, but most drivers are willing to use the technology if it meant getting a discounted auto insurance policy. And of those who have tried it, most people had a positive experience. With COVID last year, many people stopped commuting to work/school and leaving their car sitting in the garage for most of the year. While some of the reduced need for driving may be temporary, much of it may be permanent. Telematics technology and usage-based insurance will definitely be a benefit to the many of us who will be commuting and driving less.
Are you interested in enrolling in a usage-based insurance program?
If you are already currently enrolled in one, what has your experience been so far?