You have probably heard of telematics, even if you are not familiar with the name. It is also known as usage-based insurance or pay-as-you-drive insurance. The idea is for your auto insurance company to set your premium rates based on your actual driving behavior. If you have good driving habits, you pay less for your insurance, and vice versa.
With telematics, the insurance company determines whether you have good driving habits by installing a device on your car that can record certain things about your driving and report back. The simplest programs simply count the number of miles you drive and offer discounts to those who drive fewer miles than average. (The fewer miles you drive, the lower your average accident rate.)
Many insurers, however, are now offering more detailed data collection programs. These record your actual driving behavior and may also give real-time feedback as you drive. Some typical driving behaviors a telematics system might monitor include:
- The time and date the car was used
- The distance driven
- The time spent driving
- Your GPS location
- Your speed
- Any instances of hard braking
- Any activation of automatic safety features, such as emergency braking or forward collision warning
Telematics could improve your driving and safety
Before telematics, insurance companies gauged your driving habits by asking you for information and by getting reports on traffic and speeding tickets. Not only was this potentially inaccurate, but it also was not proactive.
With a detailed telematics program, the device can let you know when you are speeding, departing from your lane, braking too hard, or engaging in other potentially unsafe driving behaviors. This could help you improve your driving over time, which could result in a discount.
This real-time feedback also helps drivers build an understanding of the connection between how they drive and what they pay for insurance.
Does telematics actually improve people’s driving? One Willis Towers Watson study found that, when commercial fleets were monitored via telematics, their crash rates dropped by as much as 80%. That is quite a substantial change and may not hold up for every driver. However, we can probably assume that some driver improvement does occur.
Privacy and other concerns to consider
While some drivers are happy to be monitored extensively in order to receive a potential discount, others do not see why some metrics, such as your GPS location, are needed by the insurance company.
It is important to understand that your car’s computer tracks almost everything you do, and that a telematics device can obtain any information your car’s computer tracks. Many drivers have decided that the potential discount offered through a telematics program is not worth the loss of privacy.
Before you agree to having a telematics device installed on your vehicle, you should consider the privacy issues. Check with your insurer about what data they collect and whether that data is ever shared with third parties such as law enforcement.
Finally, you should understand that the potential discount offered for good driving behavior may not be guaranteed. Some drivers have complained to the press that they have not received any discount despite being careful and earning a clean record on their tracker.