It may not be a household phrase yet, but telematics is one of the biggest trends affecting the Property & Casualty industry -- the folks who insure your vehicles. Here’s a quick primer on what it is, what it isn’t and its potential impact on your car insurance premiums.
What is telematics car insurance?
It goes by several names including GPS car insurance, black box insurance, pay-as-you-drive insurance and usage-based insurance or UBI. But whatever it’s called, the premise is basically the same: your premiums are calculated based on your driving habits. According to Trends Transforming the Insurance Industry, telematics insurance provides insurers with the ability to, “improve the accuracy of pricing by using a customer’s actual driving behavior as the basis for generating rates.” In the process, it also holds the promise of helping you become a safer driver.
How does telematics car insurance work?
You agree to allow your insurer to fit your vehicle with a device about the size of a mobile phone. It monitors your driving behavior and delivers the data directly to your insurer, who can use the information to adjust your premiums up or down, or provide other rewards for what is considered good driving behaviors. For now, at least, it is entirely voluntary.
What is good driving behavior?
Insurance companies are statistics-driven, and their data tell them that some driving behaviors are riskier than others. That includes speeding, obviously, but also things like jack-rabbit acceleration, heavy braking and hard cornering. They also know that accidents happen more frequently at certain times of day and that the more miles you drive, the greater the likelihood you’ll be in an accident. Even the types of roads you drive on can make you more or less of a risk.
What is monitored?
This will depend on your insurer, but typically the telematics device tracks miles driven, time of day the vehicle is used, your driving techniques, and where you drive.
Is the data shared?
It shouldn’t be shared with anyone other than people directly involved with administering your policy. So, no, your insurer won’t rat you out to the police or government agency unless required to do so by a court order or unless you give them permission. However, it you’re paranoid about privacy (and, hey, you should be), be sure to read all the fine print in your policy, ask questions and get the answers in writing.
Can the device be turned off?
Nope. It’s sealed and any attempt to tamper with it will probably raise eyebrows at your insurance company. Remember, you agreed to participate in exchange for the potential to lower you rates.
What if somebody else drives your car?
The device can’t distinguish between drivers. If you let your 16-year-old son drive your car, his driving habits will impact your rates -- just like with a regular car insurance policy.
Besides potentially lower rates, are there other benefits?
A telematics device also functions as a tracking device, which means if somebody steals your ride; the insurance company will know exactly where it is. Depending on the service you have, it may also include some type of emergency contact system if you’re in an accident or stranded on the side of the road. Your insurance company may also let you review your monitored habits online so you can adjust them for safer driving. The data also has the potential to facilitate claim handling and prevent fraud, which has the long-term effect of lowering everybody’s rates.
Is telematics right for you?
If you already have a pretty good driving record and can live within the parameters of your insurer’s program such as mileage limitation, telematics insurance could be just the ticket for saving money on car insurance. If, on the other hand, your driving habits aren’t the best, you’re probably better off with a traditional policy. You can compare auto insurance coverage quotes online here and find the best solution for you.
 “Trends Transforming the Insurance Industry,” http://www.vertafore.com/~/media/Vertafore%20Media%20Library/Resources%20Liabrary/Brochures/7%20Trends%20Transforming%20the%20Insurance%20Industry%20062513_v2b.ashx