What are telematic devices? Why would insurance companies and consumers care about them? According to Gartner, telematics refers to the use of wireless devices and “black box” technologies to transmit data in real time back to an organization. Often, the term is used in relation to an automobile. Insurance companies are utilizing telematic devices to monitor how an automobile is being driven as part of their usage-based insurance (UBI) policies that reward safe drivers with lower premiums. More specifically, an insurer connects the device to the computer system of the customer’s car to monitor a variety of factors, such as the speed of the car, use of seatbelts, engine temperature, and “acceleration events” (e.g., speeding up and braking).
According to an article in Insurance Journal, insurance companies are drawn to the use of telematics, because it provides detailed information on an individual’s driving style, like flooring it to beat a red light. This driver behavior can be used to set insurance pricing and improve company returns. For drivers, monitoring via telematics does present some privacy concerns, but this is offset by the opportunity for lower rates and faster response times in the event of an accident (including medical assistance and repairs).
When it comes to driver behavior, telematic devices do seem to be having an impact. Results released this month from an Insurance Research Council (IRC) study show that 56 percent of drivers have made changes in how they drive since installing a telematic device from their insurance company. Moreover, 38 percent reported making a small change while 18 percent reported making a significant change.
A substantial majority (82 percent) of those with telematics devices reported receiving information from their insurance company about their driving behavior after having a device installed. Eighty-one percent of those receiving information said they reviewed the information and 88 percent of those reviewing the information said they found the information to be helpful.
“These findings suggest that having telematics devices installed in vehicles can play a beneficial role in promoting safe driving and reducing the frequency of auto accidents and their associated costs,” said Elizabeth Sprinkel, senior vice president of the IRC. “While we can’t say with certainty that the changes drivers make are always for the better, or whether beneficial changes that are made become permanent, we can confidently say that the introduction and use of telematics technology is a move in the right direction.”
Currently, UBI makes up less than 5 percent of the market, but experts in the field believe this will change dramatically in the next several years. Roland Berger Strategy Consultants expect the UBI market share to soar to 26 percent in the U.S. and 38 percent in the U.K. by 2020. Consultancy Oliver Wyman forecasts that car insurance using driver data to set prices will grow 40 percent a year to become a $3.6 billion market by 2020. While the use of telematics that would go along with this increase might highlight privacy concerns from some, the lure of lower premiums and added safety is a powerful incentive, especially among younger drivers who are accustomed to permanent connectivity.
(Photo: Teen Driver, Flickr)