Telematics in Motor Insurance

Telematics is the combination of words, “telecommunications” & “informatics” & when this term is used in Insurance, it is called as “Telematics Insurance”. Telematics has its application in Motor line of business in Insurance industry. Different terms are used for Telematics in insurance industry;

  • Black Box Insurance
  • GPS Car Insurance
  • Smart Box Insurance
  • Pay-as-you-Drive-Insurance,
  • Usage Based Insurance (UBI)

The main elements to the telematics device to be fitted in Vehicles are GPS system which helps to track location, motion sensor also called as accelerometer helps to know impact on vehicle due to heavy braking or accident, SIM Card which sends information to the database & Computer software which analyses & transmits the information.

Motor Insurance sector is in process of evolving into a big data industry & now with Telematics-Usage based Insurance has created huge potential for Motor Insurance business.

Let’s see how Telematics works in Motor Insurance:

A small device commonly known as ‘Black Box’ is fitted in a vehicle which operates with help of GPS technology. It records, distance traveled, speed pattern of the driver, helps in generating data about the type of the roads the driver usually drives & the time during which the driver drives (day/night).

The device also helps to capture data like; a driving pattern of the driver, average speed at which driver travels his journey, acceleration, cornering & braking habits of the driver etc. This device usage can also be tracked by connecting it with the smartphone app.

The approach of Telematics Insurance is a decade old and helps in defining the adequate pricing of insurance with respect to driving behaviors and usages of vehicle in Motor Insurance business. Usage Based insurance is continuing to be refined, as telematics makes its way into vehicles. Telematics devices are growing in capabilities to measure a growing number of elements of particular interest to Insurance Companies.

Each element can be linked with risk factor that the driver or vehicle brings to insurance company like; miles driven, time of travel, geo locations, rapid acceleration and braking, hard cornering, etc. these factors are weighted to assess risk of an accident to accurately compute a usage based insurance premium.

Benefits of Telematics Insurance–

Telematics devices can help Insurance Companies open new market with innovative technology. Usage-based incentives in form of reduced premiums at renewals will help the Insurance Companies change behaviors of their customers & reduce their claim frequencies. Such incentives can also be combined with other benefits like roadside assistance and can be used for theft vehicle recovery. Insurance Companies can also facilitate their services with help of value added services like intimating to their customers; efficient routes in case of rush hours, immediate help in case of breakdown by locating nearby garages and other emergency services. Pricing based on the below mentioned factors can attract the customers not leaving them deprived of Insurance.

Pay-as-you-Drive (PAYD) – Insurance Companies and policyholders has now started adapting new technologies in order to reduce costs. “Pay How You Drive” is the approach based upon discounts given especially for those customers who don’t use their cars often, i.e. premiums are charged by the Insurance Companies based upon kilometers traveled.

Pay-How-you-Drive (PHYD) – Motor Insurance premium is calculated depending on how the vehicle driver drives his vehicle. This approach allows Insurance companies to better explore the true telematics potential of Telematics in order to arrive at adequate price for respective customers. Telematics, being based on the “amount of exposure to risk” also manages to take into account the “real level of risk” in connection to actual behavior of drivers.

Pay-as-you-Speed (PAYS) Pricing based on distance traveled and speed behavior of diver. Premium charged by the Insurance companies on the good behavior of drivers will encourage drivers for safe driving.

Other intangible benefits include providing the Insurance companies with the ability to accurately estimate accidental damages and reduce fraud through the analysis of driving data, ensuring speedy claim settlement. Insurance companies will have accurate locations where the surveyor can go and access the accident on real time basis. Renewals will be quick and smooth as insurance companies can send alerts and reminders.

Direct Telematic benefits to Customers

Safe & careful driver could get the motor insurance with reduced premium i.e. performance of the driver directly proportional to the cost of Motor Insurance.

  • The “”Black Box”, tracking device will help to locate the stolen cars, locate vehicles during emergencies.
  • GPS system installed in the device will help locate the vehicle on real time basis further providing security to the vehicle & the travelers like family members of the Vehicle owners.
  • The huge data generated would eventually help the analysers warn the users about areas of thefts & accident prone zones reducing the fatal accident rates.

Telematics Insurance Challenges

While Telematics Insurance sounds promising at the business level for Insurance Companies its success or failure is dependent upon how many of these challenges and concerns are sufficiently addressed.

Right to privacy: The practice of tracking users’ behavior using telematics devices may have privacy concerns due to tracking practices and devices.

Regulations: The complex and evolving regulations will require amendments to obtain approvals for the use of any new plans. Navigation of such complex provisions needs regulatory infrastructure about data to be captured and the manner in which the data will be captured, before telematics insurance is recognized as mainstream component for Motor Insurance.

Cost: Implementing a Telematics Insurance program utilizing technology can be costly and resource intensive for the Insurance Companies. Technology used to capture and sensitize data will require additional resources and infrastructure.

Uniform Regulations for data security: There are many questions about how such data can be modeled and secured, as such a high volume of data being captured; there have to be data security measures in place.

Data integrity: Huge volume of data will be used by Insurance Companies, but the fact remains that with such a high volume of data being captured there will be data errors. To head off data anomalies, many of the data governance principles must be implemented to ensure data integrity.

Thus, Telematics will help to make Vehicle drivers more aware of safe driving techniques, ultimately contributing to the society by providing disciplined drivers, further providing safer roads for all citizens of nation. Last but not least, telematics will help reduce traffic congestion & pollution.

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