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Insurance companies all around the globe are embracing telematics – the integration of telecommunications, vehicle technology, computer science and electrical engineering. Telematics systems help insurance companies collect data from policyholders’ vehicles and gain valuable insights into drivers’ behavior. Insurance providers then use these analytics insights to improve their risk assessment process and personalize policy pricing. Insurers also use this information to develop new types of insurance products and reduce real-time feedback to their clients, reducing the number of reckless drivers.
Although it is tempting to incorporate modern technology into your services as quickly as possible, insurance software experts strongly recommend exploring the advantages and limitations of telematics first.
How telematics systems benefit drivers
Auto insurance software enhanced with telematics collects data from Bluetooth beacons, mobile apps for drivers, or special diagnostic devices plugged into the vehicles to assess driving safety and track mileage. The software analyzes how, when and where users drive. That information helps insurers calculate a user’s risk profile. Drivers at a lower-than-average risk of accidents can enroll in special insurance programs to pay less for their coverage.
Insurers provide two main types of telematics-based plans to their clients, and those plans are based on different monitored metrics.
- Usage-based: Insurance software assesses driver risk levels based on driving habits. Slower than average pace, smooth stops, driving during daylight hours and reduced mobile phone usage contribute to lower premium rates.
- Pay-per-mile: Insurance software tracks drivers’ mileage. Those who drive less than the average person in their area can save money.
What’s more, the incorporation of telematics into insurance apps has a positive impact on driving culture. According to an Insurance Research Council survey, 45% of U.S. drivers reported improving their driving behavior after enrolling in a telematics program offered by their insurer, as their insurance cost went down when they were driving more carefully.
At the same time, in Iceland, telematics-supplemented insurance prompted more young people to drive. Before the spread of telematics, premium calculations heavily relied on accident track records, resulting in higher costs for people without such records. With the shift towards telematics-based pricing, premiums were no longer unfairly priced against those drivers.
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