Automotive insurance companies currently offer telematics, or vehicle monitoring devices, in at least 42 states, according to a 2014 study by the Center for Insurance Policy and Research. Traditionally, auto insurance premiums have been determined by demographic information provided by the driver. Because the insurance industry is so highly regulated, only certain proxy information is allowed (for example, the EU recently categorized gender-based pricing on insurance as unfair discrimination).
But now, with the advent of telematics systems, insurers can move past proxies and the legal restrictions that going along with them. By directly monitoring and collecting data on actual driving behavior, insurance companies are offering more accurate usage-based insurance (UBI) premiums -- and often, savings -- for customers.
Here are 5 ways insurance companies can leverage telematics for new products:
1. Safe Driver RewardsMost insurance companies offer discounts for good drivers based on DMV records. Now, with telematics, insurers can personalize policies with special rates based on real-time driving data. Rewards and discounts may be offered for actual driver behaviors -- e.g., avoiding hard stops, speeding or travelling late at night.
Telematics also enable insurance companies to provide discounts for drivers based on mileage and a slew of other metrics like road selection and accident data. According to a Quartz report, “The average discount on premiums for a Progressive customer who agrees to be tracked is between 10% and 15%.”
2. Pay As You DriveTelematics devices enable more accurate premiums for consumers by making insurance costs variable, rather than fixed. With Pay As You Drive (PAYD) policies, premiums are tied directly to actual miles or even minutes driven. This provides benefits for both consumers and society as a whole, as explained by the Insurance Journal: “If people understand the cost-per-mile to operate a car, they drive less. That leads to a host of social benefits: fewer crashes, less congestion, less pollution and less urban sprawl.”
Because it creates more affordable insurance options, a PAYD program can even increase the number of insured drivers on the road. Customers are able to adjust their mileage to the auto insurance premium they can afford.
3. Driver MonitoringA desirable add-on service for customers is the ability to monitor young drivers. Forty-five percent of consumers are interested in UBI products that will keep them informed about those covered by their insurance policies, according to a 2014 LexisNexis study on telematics. Insurance companies can provide access to driver performance data either online, or even better, via smartphone apps. Parents can then pass on feedback about risky behaviors -- speeding, sharp turns, etc. -- to their fledgling drivers. This service could also appeal to adult children or guardians who want to monitor elderly drivers.
4. Geo-FencingAnother UBI service is geo-fencing, which ensures that drivers stay within predefined geographic boundaries. This is another way for parents to keep tabs on their young drivers. For example, the policyholder is alerted on their mobile device when the vehicle crosses a boundary; the driver being monitored receives the alert in the vehicle as well.
Insurance companies can also utilize geo-fencing to present automated offers to policyholders when they leave their coverage area. If the driver crosses an international border, for example, they’ll receive an alert along with an offer to buy international coverage. By the same token, insurers can provide location-based ads and even shopping suggestions to consumers who agree to receive them (usually in return for a discount of some kind).
5. Emergency/Accident ServicesOne of the most effective ways insurance companies can leverage telematics is by providing services that add value in the event of an accident or emergency. Telematics give insurers access to immediate data on braking, speed, airbags, and seatbelts at the time of an accident. In addition to facilitating the claims process by accurately estimating accident damages, this data can enhance safety by predicting accident severity and improving response time.
As soon as data shows an accident has occurred, the insurance company can automatically call emergency personnel, a towing service, or a rental/replacement car. Telematics data can also be used facilitate the tracking and recovery of stolen vehicles.
Topics: Fleet Telematics