Telematics: What Is It and Will It Cut Your Car Insurance?

telematics insurance

What Is Telematics?

Telematics, the backbone of Usage Based Insurance (UBI), has been a buzzword over the past few years; as it has gained popularity in the insurance arena.

Progressive was one of the pioneers in using telematics to gain better insight into a potential customer’s driving habits. It started by Progressive utilizing GPS and cellular technology to obtain an indication of how many miles a customer drives and using this information to provide discounts. It has since mushroomed into technology that provides a bevy of driving related information. In addition to miles driven, the telematic black box that plugs into your car under the dashboard, can provide your insurance carrier with the following:

  • When your car was used
  • The amount of time you spend driving
  • Your location while driving
  • Your driving speeds
  • Any hard breaking
  • When, and how many times safety features such as automatic emergency breaking, or forward collision warning are activated

Note that the above are simply a cross-section of items carriers have mentioned they extract from telematics when reviewing a customer’s driving habits. Its equally important to understand that when you utilize a telematics device, the device has access to virtually all data stored in your vehicle’s computer. Thus, although these are the items carriers explicitly state that they use to analyze consumer’s driving habits, they could have access to additional data.

Do You Own Your Driving Data?

Given telematics is still relatively new, most carriers that offer the service, use proprietary software to plug into your car. As a result, if you were ever to change insurance carriers, the chances that your new carrier could use your old driving data are slim. Thus, you would need to start over, in terms of the carrier evaluating your driving performance and perhaps rewarding you with a discount. This caveat highlights another aspect of telematics: privacy. Although its your vehicle, and your driving habits, you actually don’t own the information that’s transferred to the telematics device your carrier uses to track your driving habits. As a result, many consumers have exhibited trepidation when signing on to use a respective carrier’s telematics device. The idea that a third party will be aware of where you drive and at what time, doesn’t sit well with some consumers. This highlights the necessity to review your carrier’s terms of use for their telematics device, to ensure you are comfortable with what information they will extract, and how they will use it.

Insurance Discount vs. Privacy

The introduction of telematics to the insurance market has made searching for insurance slightly more cumbersome because it provides additional options for you to choose from. Now when searching for car insurance, its best to include the potential savings (typically listed as anywhere from 5% – 50%) that could be achieved through each prospective carrier’s telematics program, in addition to the traditional options derived from rating based on your credit score, age or where you live. Several carriers have incorporated telematic programs into their repertoire:

  • Progressive’s Snapshot
  • Allstate’s Drive-wise
  • Libetery Mutual’s RightTrack
  • State Farm’s Drive Safe & Save
  • Root Car Insurance (solely UBI)

The decision to try a respective carrier’s telematics program will most likely distill down to the probability you feel you will receive a discount, versus your comfort with sharing intimate driving related data with your carrier. Whichever decision you choose, make sure you compare auto pricing and coverage using EINSURANCE!

About Dale Williams

Dale Q. Williams, MBA, is a well-respected financial executive whose experience spans from insurance to investment banking. Dale has first hand underwriting experience through working for one of the largest U.S. based insurance carriers, and advisory experience from working for several bulge-bracket and middle-market investment banks. Dale also received his MBA from University of Chicago Booth School of Business, with concentrations in finance and accounting.