What Is Insurance Telematics

Published Date: 02 Nov 2017

Telematics is providing vast benefits in vehicle industry by charging auto insurance from owner by measuring driving behavior.

Telematics applications are going to become important for auto insurers in countries as they seek to control claim costs, enhance pricing sophistication, improve profitability, and differentiate their policyholder products and services.

Meanwhile, fleet owners are increasingly harnessing the power of telematics not only for basic and enhanced vehicle tracking, but also for routing, fuel expense reduction, accident response, stolen vehicle recovery, and improved safety through driver education and behavior modification.

What is Telematics and why should we take note?

Definition: The history of a word telematics, as determined by Automotive Telematics author and academic Dennis Foyer, is from the Greek "Tele" ('far away', especially in relation to the process of producing or recording) and ~Matos (a derivative of the Greek machinari, or contrivance, usually taken in this context to mean 'of its own accord'). As combined, the term "telematics" describes the process of long-distance transmission of computer-based information.

Detailed meaning of telematics should include the following:

• The technology of sending, receiving and storing information via telecommunication devices in conjunction with effecting control on remote objects.

• The use of telecommunications and informatics, for application in vehicles and control of vehicles on the move.

• Telematics includes, but is not limited to Global Positioning System technology incorporated with computers and mobile communications technology in automotive navigation systems.

Most narrowly, the term refers to the use of such systems within vehicles on the road, in which case the term vehicle telematics may be used. This includes emergency warning system for GPS navigation in vehicles, integrated hands-free cell phones, automatic driving and wireless safety communications.

Benefits of adopting telematics

Vehicle Telematics are used extensively in both personal and commercial use. It has proved to be a powerful and valuable tool to improve the output within organizations and businesses.

Society

•Reduce severity and accident frequency (e.g., via driver incentives and education)

•Reduce accident response time

•Track and recover stolen vehicles

•Establish fault which helps in settling claims

•Reduce driving, pollution, traffic congestion and energy consumption

Insurers Consumers Fleets

•Correct risk misclassifications

•Enhance pricing accuracy

•Attract favorable risks

•Retain profitable accounts

•Fight fraudulent claims

•Reduce claim costs

•Enable lower premiums

•Replace proxy variables with intuitive variables directly related to loss exposure

•Differentiate brand

•Market programs which are environment friendly

Consumers

•Reduce premiums

• Demonstrate Safe driving habits following an accident.

•Enjoy value-added services, including:

•Teen driver monitoring

•Emergency services

•Navigation/infotainment

•Stolen vehicle recovery

•Vehicle diagnostics

Fleets

•Optimize routing

• Considerably improve customer service (on-time delivery and appointments)

•Reduce payroll

•Save fuel

•Reduce maintenance costs

•Reduce towing and repair costs via preventive diagnostics

•Monitor and improve driver safety

•Reduce self-insurance and premiums costs

•Auto liability

•Auto physical damage

•Workers compensation

What is Insurance Telematics?

Insurance is all about measuring and calculating risk. Vehicle telematics is the best, most effective and scientific way to limit risk. Insurance companies evaluate the level of risk and then set premium rates and coverage per the measurement in question.

Data on the safe driving of vehicles have allowed fleet managers for a number of years to better manage their fleets of vehicles and retain the best drivers. This have allowed vehicle fleet owner to save millions in maintenance cost and fuel costs and also allowed them to increase productivity.

It is also logical that the same data on driving behavior would also be important for car insurance companies.

What knowledge about driver behavior would be most important to insurers?

• Insurers would be better able to measure risk by knowing what kind of driver is driving the vehicle.

• Do they drive according to the speed limit or race around town? How many times are they guilty of exceeding the speed limit?

• Do they slow down when they see a yellow light and then stop?

• Is the driver prone to excessive braking?

• Where is the car driver driving? Does he travel on the main roads or does he frequently enter hazardous areas?

• How much is the driver driving and at what time is he driving the vehicle?

An insurance company seldom knows the answers to such questions. With insurance policies realized with vehicle telematics in mind insurers can gain access to this information.

Usage Based/ Pay as You Drive / Insurance Telematics

Until now car insurers only asked only basic information to be disclosed. This included questions on vehicle and driver characteristics, use of the vehicle and geographical location. Premium calculation depended simply on horsepower of vehicle, type of vehicle, sales price, age and sex of the driver, and where she or he lives.

Vehicle telematics now allows for usage based car insurance where technology is an important component in calculating insurance premiums. With the help of Vehicle telematics car insurance premiums are calculated by actual performance on the road. Telematics devices transmit real-time driving data to insurers, who can then gain a more legitimate picture of driving behavior and use this to set fairer rates for law-abiding, fuel-conscious drivers.

3 Types of usage based insurance

1. It is based on the odometer reading of the vehicle.

2. It is based on the number of minutes the vehicle is being used as recorded by a vehicle-independent module transmitting data via cellphone or RF technology.

3. It is based on other data collected from the vehicle, including speed and time-of-day information in addition to distance or time travelled. Other data can include where you are driving and driving behavior such as excessive braking, speeding etc.

The formula could be derived as a simple function of the number of miles you drive, or can vary according to the type of driving or the driver identity. When the basic structure is in place, it is possible to add further details, such as an extra risk premium if someone drives too long without a break, uses mobile phone while driving, or travels at an faster speed than allowed.

By installing telecommunications devices into cars, insurers can now measure and price premiums more efficiently, provide improve safety, customized services, and reduce claim costs.

Benefits in a challenging economic climate

One of the driving forces behind the growing interest in insurance telematics is the need to survive in an economy where exist cut-throat competition. With the cost of living at a high, vehicle owners are looking for potential savings – and the highly price competitive car insurance industry is the first point of call!

Insurers who have designed insurance products to align pricing with driving behavior are especially attractive to those safety conscious drivers who are, through their driving, reducing the risks on the road!

With these products the driver's behavior is monitored directly while he drives and this information is transmitted to an insurance company. The insurance company then assesses the risk of that driver having an accident and charges insurance premiums accordingly. A driver who drives long distance at high speed, for example, will be charged a higher rate of insurance than a driver who drives short distances at slower speeds. If you are a good driver telematics should therefore help you find cheaper motor cover.

Challenges to Insurance Telematics

Carriers that offer telematics-based insurance products must address various challenges. History

has taught us that these challenges cannot become excuses — the advantage to early adopters is

simply too great to forgo. (Recall the introductions of credit-based insurance scoring and predictive

Modeling.) Below, we outline several key challenges.

Cost

Simply put, the long-term benefits of the telematics program must exceed its costs. A program should not be introduced unless it makes economic sense for the carrier and some subset of its policyholders.

Much has changed since the early days of telematics, when only large commercial fleets could afford widespread implementation. Thanks to the relentless advancement of technology, telematic devices have become smaller, faster, and smarter— and cheaper (as have the accompanying telecommunication services and data storage).These trends will continue. Judging by the

Considerable activity in the insurance telematics space in the past year, leading carriers clearly believe that the benefits will exceed the costs for sufficiently large policyholder segments.

Insurers have important decisions to make about a telematics program’s cost and value. There are many positions from which to choose on a spectrum that ranges from limited applications with minimal cost, to those that offer value-added services that appeal to customers.

Data management

Insurers need to decide what type and quantity of data they want to manage internally, and what they want to outsource to telematic data providers to manage on their behalf.

Privacy

Many consumers are hesitant to share information about their driving behavior (such as speed and braking) with their insurers. Consumers are even more reluctant to share location data. Regulators, legislators and public policy personnel have concerns about the potential for mishandling or abuse of this type of information.

Road Safety and Insurance Telematics

How will insurance telematics impact on the efforts to enhance road safety?

By providing the incentive of cheaper car insurance premiums for responsible driving behavior, the insurance industry is also promoting road safety! Telematic usage based insurance requires that vehicle information is automatically transmitted to the tracking system. This provides a much more immediate feedback loop to the driver, by changing the cost of insurance dynamically with a change of risk. This means drivers have a stronger incentive to adopt safer practices. For example if a commuter switches to public transport or working at home, this straightaway reduces the risk of rush-hour accidents. With usage based insurance, this reduction would be directly reflected in the cost of car insurance for that month.

Conclusion

Insurance telematics has been recognized for more than the benefit it provides of increasing safe driving behavior. Traffic Congestion and the impact that CO2 emissions and green house gases have on the environment have received the attention of governments and world health and environmental protection agencies. Insurance telematics and GPS technology such as Tom Tom HD Traffic are regarded as some of the important tools to reduce unnecessary travel and traffic congestion.