How telematics can decrease your car insurance price
Traditional car insurance has relied mostly on demographics, car attributes and previous claim history. What car you are driving, how old are you, are you married or single or where do you live- These are some example attributes mainly used to understand the risk you pose for an insurer. Of course, more powerful and luxurious cars indeed require more effort to be repaired but what about when you are a car-lover and only take your precious vehicle for a ride during sunny weekends?
Enter the world of telematics solutions. Hardware or mobile phone-based technology for monitoring a wide range of data related to vehicles. These systems gather data including vehicle location, fuel consumption, diagnostics or driver behavior. Based on an article by McKinsey1, the global market for fleet telematics hardware, software and services is forecast to grow at around 23 percent per annum for the next 6 years, becoming a $75 billion Industry by 2025.
First telematics solutions were mainly a black-box type of hardware installed in your car that communicated with the car’s OBD system. Even today having one of these fitted may take up to a few hours. Now we are seeing the rise of different kinds of telematics solutions. The first type is mobile phone-based. Using sensors embedded inside phones these solutions can gather additional data that hardware-based solutions couldn’t- driver distraction or driving with other vehicles. The second approach is based on connected car technology meaning that vehicles rolling out from factories have all the required hardware and software in place. Business Insider reports that BMW is the leader in the connected car push. In addition to car manufacturers, tech companies like Alphabet, Amazon, Apple and others are also investing considerably in the area of connected cars.
By using telematics solutions, insurers can provide new kind of usage-based motor Insurance(UBI) services for their customers like Pay-as-you-drive or Pay-how-you-drive.
These approaches require accurate monitoring of when and how one is driving. By applying telematics-based solutions, insurers can offer incentives ranging from free coffee to cheaper insurance policy. But it’s not only how to save money. More advanced solutions offer additional benefits for users like trip video recording via dash-mounted phone, Collision detection, Seamless claim handling and Providing education tips for improving driving style.
Cachet believes that insurance should be priced based on drivers actual driving habits not only just on their demographics or historical claim history. Other insurance providers are also seeing the value of innovative approaches. For example- the number of auto insurance policies in North America that use digitally-logged data from the car is expected to grow to nearly 50 million in 2023, from about 10.6 million at the end of 2018, according to Berg Insight, a Sweden-based research firm.