Auto insurance companies are embracing data and technology just as much as other kinds of business. The latest innovation is called telemetrics, and it promises to fundamentally alter the relationship between insurance carrier and customer. The concept is simple, and yet its implications will make insurance much cheaper for safe and careful drivers. Telematics combines new hardware and software to gather detailed information about how individual people drive. Then the insurance company can charge each person and individual price based on how safe of a driver they are. In this post, we will explain telematics in detail and describe how it will affect insurance costs for the average consumer in Texas.
The idea behind telematics is that insurance companies are never sure which customers are going to get into accidents and make claims. Right now, they use demographic information like the customer’s age, along with data on whether they have gotten into accidents or been given a ticket before. This information is not that helpful, though, so insurance carriers have tried to find a better way. That better way is telematics. The heart of telematics is a device that plugs into the car. The device measures a lot of details about your driving habits: average speed, acceleration during turns and after stops, the tightness of turns, suddenness of stops, and more. All of this information builds up a solid picture of how likely that driver is to get into an accident. The device transmits all of the data it collects to the insurance company. Then the company can use the data to make a statistical model of each driver. Safer drivers get major discounts, and risky drivers might see price increases.
So far, telematics is a young idea. Progressive is the only company to roll it out broadly with their Snapshot product. It’s a device that plugs into the steering column and connects to Progressive’s servers. From the beginning, the program promised discounts to safe drivers, and just recently Progressive announced that they would begin charging higher premiums to drivers who exhibit risky behavior. The data they collect is starting to pay off. The company can create individualized pricing for each of their customers. Most drivers benefit from this system. The old style of predicting which drivers would get into accidents using age and that sort of information was crude, so insurance companies had to overcharge most people in order to make up for the uncertainty. They had to err on the side of charging too much so that they could be sure they would make money. Telematics gives them so much more individualized information that they can start to bring prices down, especially for those safest drivers who stand to gain a significant savings as the company learns more about their driving style.
Of course, the riskiest drivers will lose out due to telemetrics, but most drivers will enjoy savings on their auto insurance to some degree. There is an element of privacy at stake- not all drivers will be comfortable with having some information about them beamed to their insurance carrier. For others, though, the savings makes it worth it. More and more insurance companies are planning to try telemetrics programs, because it’s a profitable choice. The company makes more money and attracts more customers by using the more detailed data. That makes telemetrics a win-win for insurance companies and customers.