As a responsible driver, would you prefer to pay an average auto insurance premium to help cover losses incurred by high-risk drivers or would you prefer to have a low insurance premium designed to cover the low risk you pose of potential loss?
If you’re like most drivers, you would prefer to keep rates low and let high-risk drivers pay for themselves. That’s exactly the role of telematics in auto insurance. Let’s dig a little deeper.
An Overview of Telematics
The term telematics was derived from two sciences: telecommunications and informatics. Quite simply, telematics is the science of collecting, transmitting, and then processing data to drive business improvement.
In the auto insurance industry, telematics devices are placed in vehicles to understand driver habits better and then customize insurance premiums and policies based on the risk each driver poses to the insurer. For this reason, responsible drivers benefit substantially from telematics.
How Telematics Work
If you elect to participate in a telematics program offered by your auto insurance company, you’ll be provided with an electronic device that plugs into the OBD-II port in your car; that’s the port used to run diagnostics, too. Once you plug in the device, it begins “observing” your driving behaviors and transmitting data about your driving habits back to your insurance company in real-time, as it occurs.
A few of the things a telematics device records is hard braking episodes, quick acceleration, speeding, sharp corners, and basic demographic information like how many miles you drive, which geographical areas you drive in, and what time of day you drive. All of this information is transmitted to your insurance company, who will use it to make more informed decisions about your coverage (and the cost of that coverage).
Who Uses Telematics in Auto Insurance
Most companies providing auto insurance offer a telematics option. Some of the most well-known insurers with telematics programs include Progressive, Nationwide, Safeco, and Travelers.
How Insurance Companies Use Telematics
Your insurance company will use the data to accomplish a few different objectives.
First, they’ll use it to learn more about how you drive, so they don’t have to make assumptions. For example, statistics support the assumption that teen boys drive fast and brake hard, but not all teen boys are risky drivers. Telematics can help them identify the drivers that do drive fast and brake hard and increase their insurance premiums while decreasing premiums for the drivers who don’t. Telematics help keep costs low.
Second, they’ll make tough decisions about who to insure. A single accident can result in losses in the millions of dollars, so choosing not to move forward with the highest risk drivers before an accident ever occurs can help keep rates low for the rest of the company’s policyholders.
Finally, they’ll use it to support their investigation into an accident or claim. The data collected typically includes pre- and post-accident data, including where the vehicle was hit, what damage occurred, and whether passengers in either vehicle involved were likely injured as a result of the accident.
Why Telematics Helps the Insured
Telematics can help you keep your premiums low by customizing premiums for you.
To learn more or get a free auto insurance quote, reach out to Smith Insurance and Financial Services, Inc., in Big Bend, Wisconsin today. Our experts are eager to help you save money.