Car Insurance Guide

Insurers use a wide variety of factors to determine your insurance rates. The underlying assumption is that all these factors will help them determine how likely are you to file a claim.

Since the insurance company is looking to earn a profit from every policy sold, it wants to make sure that the price (i.e., your premium) is proportional to the risk.

Each claim that you file is a potential outlay and could reduce the profit of the insurance company. Therefore, your insurer will ask you about your age, marital status, gender, your credit score, and your driving history.

Each of these is used to estimate your driving behavior. E.g., teens are considered high-risk drivers and therefore pay the highest premium of all policyholders in the voluntary insurance market. On the other hand, insurers may consider a married individual less risky.

However, all these are estimations of your driving behavior. Some teens can be less risky, whereas a married person can drive recklessly.

What if you do not need to estimate driver behavior? What if your insurance premium is customized based on your driving style?

You stand to save a lot on premiums by driving safely. Whereas, your insurer can accurately price your premium based on driving behavior. Your insurer can quote a competitive rate and at the same time, correctly manage their risk.

No more estimators but data-driven insurance assessment.

This is the promise of telematics.

In this guide, we will help you understand everything that you need to know about telematics in car insurance.

Before understanding the benefits of the use of telematics in auto insurance, we should understand the current statistics in road safety.

Road safety is not important for only you or the insurer but also for the government. While safer roads would mean fewer claims for insurance companies, the government wants to make roads safer for the residents.

According to the National Highway Traffic Safety Administration (NHTSA), there were 37,133 fatalities due to crashes in 2017. According to NHTSA, speeding resulted in 9,794 deaths in 2017.

If you count major and minor crashes, there were 6.5 million crashes with 2.7 million injury victims.

All stakeholders, including you, insurance companies, and the governments, will want to reduce these trends.

How do you do it?

Governments use traffic tickets, license points, and educational programs to improve driving behavior on the road.

Insurance companies may award discounts for a good driving record.

But all the incentives and fines do not measure driver behavior. Instead, insurance companies calculate these based on past data rather than present patterns of behavior

Driver events data may include miles clocked, acceleration & deceleration, cornering speed, etc.

The data from telematics systems can be used to track stolen cars or help manage the maintenance schedule.

However, the first products introduced in the market are basic usage-based insurance policies. This basic pay-as-you-drive (PAYD) insurance products are essentially priced based on the number of miles you drive.

ematics insurance industry has evolved beyond the basic PAYD. In this section, we will understand the different types of telematics systems in the market and the type of data collected by insurance companies.

 What are the types of usage-based car insurance?

The basic usage-based car insurance (UBI) is only concerned with the miles you clock. The parameters measured include distance, time, and location.

Now, let us understand how this basic system useful for an insurance company:

Let us assume that you are driving a reasonable distance but are usually out in the night-time.

According to the National Highway Traffic Safety Administration (NHTSA), nighttime driving is three times more fatal than daytime driving. Insurance companies generally consider after dark to be riskier than day-time driving and, therefore, may tag your driving schedule riskier than average.

However, there are now more sophisticated systems to understand driver behavior.

While UBI or PAYD gives financial incentives to drive less, other programs such as pay-how-you-drive (PHYD) plans will measure your driving style to calculate risk.

In a PHYD plan, the car’s telemetric system will measure vehicle speed, acceleration, braking, corning speed, etc.

The factors used in pay-how-you-drive systems utilize real-time data to create a bespoke insurance plan.

 How do insurers collect driving data?

But, how does telematics systems record your driving data?

Different applications require different types of devices or methods to record your data.

Some insurance companies may use your phone to record and report the driving behavior using an application. However, some systems may require you to install a device in your car that will record and transmit driving events.

However, before we understand the different devices, let us first understand what a telematics device is?

Insurance companies provide telematics devices that connect with GPS and onboard electronics to record your driving behavior.