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How Might Consumers Benefit as Insurance Telematics Programs Grow?

How Might Consumers Benefit as Insurance Telematics Programs Grow?
Sirinarth Mekvorawuth | Dreamstime.com

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Thursday, 15 February 2018 02:19 PM Current | Bio | Archive

In 2017, the auto insurance industry introduced significant technological innovation including most major insurance companies now employ programs that use telematics--a field that combines computing and telecommunications, including location-based technologies. Experts predict the automotive telematics industry will continue to grow annually by at least 23% over the next few years.

As a consumer, you likely have questions about how telematics insurance programs affect you, your driving, and your auto insurance rates. Insurance carriers employ telematics programs to offer usage-based-insurance (UBI) to customers. It aligns premiums with actual driving behaviors instead of the traditional approach that calculates premiums using underwriting criteria. The result promises reduced auto insurance premiums for good driving habits, along with increased premiums for poor driving habits.

Not every carrier offers the same type of telematics program. Some companies, such as Safeco send participants a device to install in their vehicle. The device tracks their driving habits and participants received an insurance premium discount of at least five percent. Other companies, such as Farmers Insurance, offer an immediate three percent discount for using a mobile app to track driving habits, which will adjust as they collect information on your behavior. 

Consumer interest and acceptance

Consumer interest in UBI varies depending on the country, age, and type of tracking utilized. In a study released by Towers Watson, more than half of survey participants showed interest in the use of telematics insurance programs. But some individuals remain wary of the new technology and the intent of insurance carriers in using it, which they fear has much to do with increasing auto insurance premiums. Indeed, the interest in telematics among U.S. consumers increased by some 12% when companies guaranteed drivers would not experience a rate increase.

Another setback for some insurance carriers is that more consumers prefer to use either a self-installed or hard-installed device, such as Safeco’s tracker, instead of a mobile option, installed as an app on their smartphone. If insurance companies can’t overcome the resistance to app-based telematics, their costs to implement programs may be higher than they anticipated.

In the United Kingdom, the number of UBI policies purchased has grown significantly, to reach nearly one million in 2017. According to BIBA, a considerable portion of these telematics policies are purchased by younger drivers. Nielsen reports similar findings in the United States, where one study found millennial drivers were 44% more likely to use a telematics program offered by their insurance carrier. As these younger drivers increasingly purchase their own auto insurance, it’s predicted the use of telematics programs will continue to rise. 

What are the benefits of telematics insurance programs?

By essentially turning a car into a connected device that collects data, telematics allows insurance carriers to learn more about driving habits which they can aggregate to look at trends and create new insurance solutions. The technology may also allow auto manufacturers i to develop safer vehicles.

Here’s how drivers, too, may benefit:

1.   Good driving habits will be better-rewarded

By tracking driving habits, insurance carriers can calculate your premium based on your specific driving habits. If you are a safe driver, you could well see a resulting discount on your auto insurance premiums. For example, Progressive customers who used the company’s Snapshot program saw an average discount of $130 per six months when they next renewed their policy.

2.   Road safety should rise

When drivers spot police vehicles, they tend to change their driving habits. Installing telematics devices in vehicles may have the same impact, but virtually. If a driver knows a device is monitoring their speed and other driving habits, and the resulting data may raise their premiums, they’re more likely to abide by road safety laws. In fact, in one study, 63% of drivers indicated that having a telematic device in their vehicle would change their behavior on the road.

3.   Auto theft will be deterred

Installing a telematics device deters thieves, because it allows insurers to more rapidly locate stolen vehicles. That, in turn, should minimize the number of auto theft claims filed and potentially reduce premiums further.

4.  Claims processes should be streamlined

Tracking devices will automatically collect and transmit some of the data that’s required after an accident occurs, such as the speed you were driving and how well you were handling the vehicle. That information will help accelerate the processing of a claim, including allowing any disputes with other parties involved about who is at fault to be settled more easily.

5.   Insurance fraud will be reduced

Insurance companies are using telematics data to determine if they’ve been presented with false information, and have already rejected dozens of fraudulent claims based on it. Having such data at hand, and instantly, allows them to make better decisions on coverage and to reduce the number of false claims and insurance fraud cases. Those trends, too, may also further drive down rates.

As more drivers accept the place telematics has in auto insurance, the greater their opportunity to experience decreased premiums and safer roads as a result. However, it’s as yet unclear whether the majority of drivers will be comfortable with sharing the necessary amount and scope of data about their driving to fulfill the promise of the technology.

Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.

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How Might Consumers Benefit as Insurance Telematics Programs Grow?
consumers, benefit, insurance, telematics
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2018-19-15
Thursday, 15 February 2018 02:19 PM
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