Telematics and the Future of Auto Insurance

Your fridge knows when you’re out of milk. You can change your home’s thermostat from anywhere with an app. The watch on your wrist has more processing power than the 100-pound computer you first used in the ‘90s. And increasingly, an industry long built on forecast models is becoming one where real-life data is king.

More accurate insurance estimates

“Insurance telematics shifts the question of ‘Why are my auto insurance rates changing if I’m a responsible driver?’ into a conversation focused on ways drivers may directly impact their own insurance premiums based on their specific driving behavior,” said Stephanie Shegitz, director of insurance at AAA Ohio Auto Club.

Traditionally, insurance companies use data and statistics to predict levels of risk for various groups or individuals, which results in the development of rating plans. These rating plans can be complex, taking factors like driving history, coverage limits and financial risk score into account.

Telematics, or usage-based insurance, offers companies a view of your driving habits via an app or in-vehicle device. These devices can assess speed, braking and more. The information collected is used to assess your auto insurance risk, help calculate the cost of your renewal premium and give responsible drivers added discounts for safe driving habits.

Telematics in action

For Kathy Lawson, manager of insurance client relations and service at AAA Ohio, using telematics devices has been cost-effective.

“With two teenagers and four vehicles, I needed to do everything I could to save money,” Lawson said. “Besides the discount for just having the telematics devices in our cars for a few months, we could get even more of a discount depending on our driving.”

The devices allowed Lawson to monitor activity in each vehicle, thus seeing how her children were driving. “As a family, we turned it into a game to see who could get the better score, and I was able to see a few issues with my new driver that I could address,” said Lawson.

Companies have found that the data collected can be a better predictor of an accident than traditional rating plan variables. Companies don’t currently provide rates solely from the telematics devices – although they may in the future.

“We’re continuing to see telematics evolve and transform the future of car insurance, especially through connected cars. Telematics is here to stay,” Shegitz said.

All insurance companies are different, so consult with your agent about the possibility of enrolling in a telematics program.