How telematics is shaping usage-based insurance

On many fronts, the digital insurance industry looks very different than it did five years ago.

One of the biggest changes is the continued growth of usage-based insurance (UBI) models, which use data from each individual driver – for example, how fast they go, where they go and how often they drive – to determine the car insurance premium. . The UBI industry is expected to be a $175 billion industry by 2028, up from $48 billion in 2023.

Of course, UBI is not possible without telematics devices. Driver behavior tracking technology is becoming cheaper, smarter and more convenient for both insurers and their customers – one of the big reasons why the sector is growing so quickly.

That’s why it’s critical for providers to understand where the telematics industry is headed and what benefits and challenges these changes present.

The telematics revolution

The term “telematics” dates back to the 1970s, but the technology didn’t become commonplace until much more recently as GPS technology became a ubiquitous part of our lives. Now, these devices are extremely accurate when it comes to knowing where someone is, how they are driving, and how risky their driving behavior may be.

Telematics devices are now widespread. Many car companies – such as BMW and Tesla – install data transmission directly into their vehicles, and drivers can also share information directly from their smartphones. It makes sense that UBI programs almost doubled in popularity from 2016 to 2021 as many of these technologies took hold.

But with UBI still not nearly making up the majority of plans on the market, the question becomes, what’s next? Because telematics offers a clear advantage for many customers – especially good drivers – it seems clear that more insurers will go all-in on telematics-based offerings as the competition heats up.

The biggest benefits

It’s easy to see why UBI is expected to grow in the coming years.

On the one hand, it offers massive benefits to customers, many of whom can get discounts as a reward for their good driving. It’s easy to see why many drivers would jump at the chance to have more control over what they pay.

And these savings are not just imagined. In 2022, Progressive said drivers who switched to telematics-based programs saved an average of $146 during the previous year.

This is an advantage in itself for insurers as it allows providers to remain competitive and offer better rates than their peers. But for providers, the even bigger advantage is data.

Telematic devices it doesn’t just measure speed and driving timethey can track everything from seat belt usage and idling time to hard braking and various vehicle issues. These capabilities can be transformative for risk assessment, as they allow providers to avoid large losses by setting rates that truly match driver behavior and circumstances.

In addition, this wealth of data can help speed things up claim processinsurers being able to immediately access information describing how an accident occurred and what factors played a role in it. It can also help prevent fraudulent claims.

Some challenges

Like any emerging technology, telematics is not without its drawbacks.

First, some customers don’t like the idea of ​​giving so much data to an insurance company. There has been growing frustration about the amount of information being collected by cars in general, with some going so far as to call vehicles “wiretapping on wheels.”

To address this issue, providers must ensure that they use telematics data responsibly. From there, it’s about educating potential customers about how and when their information is shared. It also relies on insurers to emphasize the pros over the cons, leaning towards flexibility and possible massive discounts on deals.

However, there is a downside to these benefits, which is that customers will understandably be upset if their driving behavior results in higher rates instead of lower rates. There, providers must be prepared to set expectations accordingly and explain to clients how they can work to improve their risk factors and receive a better rate.

Overall, telematics presents some key challenges – mostly in the areas of customer service and marketing – but its benefits are not yet fully realized. As the UBI industry continues to grow, the most successful providers will be those that can adapt to change and keep up with new trends before they fully blossom.

See more:

How to revitalize your auto insurance coverage with telematics

Telematics Class Action: Legislation and Legal News