The auto insurance industry operates on the basic principle of calculated risk by determining rates by predicting the likelihood of an individual’s future claim reporting. The factors underlying the risk assessment and predictive analysis – which are designed to effectively determine the potential for future damage – vary depending on the type of insurance plan and its implementation.
Any company considering an insurance telematics program should carefully consider how well the program fits into the company’s mission, as well as its overall business goals and long-term strategy. Most insurance companies are based on one basic idea: to help individuals deal with these costly, life-changing events – be it fire, accident, or health crisis – by pooling funds from a wide range of customers to cover the costs. To do this effectively as a company, you must be able to assess risk factors, predict the frequency of costly events with reasonable accuracy, and find ways to reduce or manage risk.
What is Usage-Based Insurance (UBI) and Telematics?
Usage-based insurance (UBI), also known as pay-per-mile, pay-as-you-drive, or pay-as-you-go, is a type of car insurance that, depending on the program of the respective insurer, can measure how far one Vehicle is driven where it is being driven and/or how it is being driven.
Often powered by telematics – a technology that is available in vehicles via a plug-in device or preinstalled on the vehicle network, but can also be available through mobile applications – UBI provides a range of data on the condition of the driver to insurers adjusts braking and acceleration to your speed, where you are driving and how long you are behind the wheel.
The data collected is sent to an insurance company, which can track the distance traveled for basic pay-as-you-go insurance or more generally assess the risk profile of a particular driver in order to reward safer drivers with discounts on their insurance.
Usage-Based Insurance depends on telematics to collect various data pertaining to driving behavior such as:
- Distance driven
- Acceleration, braking, and lateral movement
- Where and when you drive
- Speed of the vehicle
- Distracted driving
Benefits of Telematics Car Insurance
Telematics opens the doors to the development of usage-based insurance (UBI) that meets current consumer demands for personalization and specialization.
- Data procured from daily driving can make drivers aware of their driving habits and help them become better drivers.
- Telematics-based insurance and optimized claims management including First Notice of Loss (FNOL) can reduce the average total cost of a claim by 40% if it is reported within half an hour.
- Good drivers are rewarded with lower premiums enabling them to save costs.
- With the right data, insurers can offer certain car owners new, improved, and tailored insurance policies that lead to increased profits for the insurer and comprehensive insurance and satisfaction for the policyholder.
- Telematics tools/software have a geofencing tracking mechanism that can benefit businesses that want to track their vehicle fleet who want to know where their drivers are heading.
- Car owners who do not use their vehicles often have to pay less premium compared to conventional policies.
Lowering Risk with Telematics and Usage-Based Insurance
UBI offers both transport companies and consumers additional benefits that lead to safer driving behavior and thus fewer accidents. Telematics-based fleet management tools such as driver trend reports, scorecards, and driver feedback in the vehicle can support drivers in reducing speeding and aggressive driving behavior, reducing idling, and increasing productivity.
Telematics data makes it easier to understand what needs to be done to become a better driver. Continuous feedback on driving behavior can also help reduce fuel consumption by reducing rapid acceleration and sudden braking.
Usage-based insurance can be worthwhile if you are a safe driver. And some insurance companies will automatically give you a discount if you just join their program.
Setbacks for UBI and Telematics
According to a survey by HSB, “More than a third (37%) of U.S. drivers are somewhat or very concerned about the cyber-security and safety of connected and automated cars. A similar number of drivers (35%) fear that a virus, a hacker incident or a cyber-attack could destroy their car’s data, software or operating system.”
Mileage tracking and driver behavior in UBI programs have many raised privacy concerns. As a result, some states have passed laws requiring the disclosure of tracking methods and devices used. Some insurers also restrict the information they collect.
Telematics and UBI not only support pricing, but also claims management and payment, and helps insurers to develop personalized policies and provide meaningful customer interactions. Insurance carriers that implement a unique telematics and UBI strategy with the help of this technology can create strong assets and competitive advantages from the collected data.
The insurance industry can no longer be transactional with customers. Steady access to data and continuous connection will enable insurance companies to personalize and provide exciting policies for better customer experiences.