Modern vehicles are technologically advanced, preloaded with high-tech sensors, smart gadgets, and automatic maneuvers to make driving more pleasant and safer. One of the biggest innovations has been the use of telematics insurance programs. Insurance companies utilize technology, specifically GPS and diagnostics of driving conditions, to record your movement along a map and generate information on your driving habits.
It’s the same technology that delivery trucks use to provide tracking information for customers. The same tech has been used in car racing for over a decade to see opponents on a racetrack. The telematics insurance tech provides real-time data on your driving behaviors to your insurer. This option provides benefits for good drivers while penalizing reckless ones. Data is provided by the telematics diagnostic tools installed in the vehicle. Learn more about this below.
What Is Telematics?
Telematics insurance is also known as usage-based insurance. It relies on monitoring and diagnostic technology to determine and adjust your insurance rates. It usually hinges on two factors: how far you drive your car (pay as you drive) and what kind of behavior you exhibit on the road (behavior-based rates).
Telematics can determine how far you travel, how aggressively you accelerate, how abruptly you brake, your exact location, whether you use signaling devices, and more. Based on the data generated and provided by the machine, your insurer could offer discounts if you’re a good driver. In essence, the telematics device significantly impacts your car insurance premiums. The car insurance companies can track your usage with the following telematics options:
- Built-in car tech like on OnStar
- Plug-in device
- Mobile app
- Combination of the above
You can think of telematics as a spy for your insurance company. However, telematics is still optional. But it is important to note that some insurance companies provide an initial discount if you agree to be monitored using telematics.
Infographic created by Track Your Truck, a GPS vehicle tracking devices provider
Primary Benefit of Telematics
The major benefit of telematics is cost savings. It allows your insurance company to give you tailored rates based on how far you travel or behave on the road. Instead of paying a standard rate, you could get a discount based on your specific risk level. By providing your driving data to your insurer, you give concrete evidence that you’re a low-mileage driver or a safe driver who deserves lower rates.
Note that some of the factors used by insurance companies are based on elements beyond your control. These elements are your age, gender, where you live, and crime rate. To illustrate, insurers consider new drivers and seniors a higher risk, just as those living in urban areas could have higher premiums because of denser populations with a higher risk of accidents and crime.
But with telematics, you still have a chance of lowering your premiums because car insurance companies receive accurate data. They now have the means to track your mileage and behavior when evaluating your insurance policy coverage and premiums. Good drivers with excellent habits and those who don’t travel as much could expect fairer premiums. Relying on telematics for an evaluation could help mitigate monthly insurance costs.
How Does This Work?
Telematics insurance works based on what you opt for. Pay-per-use hinges on distance, while the behavior-based program depends on your driving habits. Take a look at their nuances below:
- Distance: The pay-per-mile option works on the principle that the less you drive and the less distance you traverse, the lesser the car insurance premiums. Now, you don’t have to pay blanket fees per month. Instead, you pay per mile based on how much you travel. If you’re someone who doesn’t use your car frequently, you could end up paying significantly less on your premiums. But if you have a long commute to work, bring your children on errands, and make long road trips, you may pay more than the standard insurance policy.
- Behavior: As the program name suggests, this tracks how you drive. It rewards very good driving habits with lower premiums. If you’re a defensive driver following traffic rules, insurers could lower your auto insurance premium because you drive well. Insurance companies say that collated data will not impact those who exhibit bad driving habits. Insurers will only use telematics feedback to offer discounts. For example, those who frequently get cited for violations or engage in reckless driving like overspeeding or hard cornering could use the data to build better habits, improve driving skills, and keep safer on the road.
Assessing If Telematics Is for You
Although telematics could provide cost savings, it’s not a perfect piece of technology. The major downside of telematics is you give up your data privacy. After all, the only way you could enjoy insurance premium discounts is by sharing your data with insurance companies. Since it relies on GPS tracking devices, it won’t just know how far or how well you drive but where you drive. Someone will always see where you are, so if you feel uncomfortable sharing your personal information, think twice about telematics. But if this is not a problem for you because you’re used to it with frequent social media use, telematics could show your insurance provider that you’re not a big risk, so you deserve lower rates.