Telematics Is Helping People Save on Insurance: What You Should Know Before Opting In
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More insurers are offering telematics programs, which allows policyholders to score a discount based on how safely they drive in exchange for surrendering their driving data. Amidst sky-high gas prices and industry-wide rate increases, telematics opt-ins have increased from 32% in November 2021 to 65% in March 2022 according to a TransUnion survey.
Budgets are stretched thin, and drivers are seeking savings wherever possible. Keep reading to learn how telematics programs work and how you can enroll with your insurance company.
What Is Telematics?
You're probably familiar with how GPS devices can track vehicle location very precisely in real time. Using a combination of GPS tracking and cellular networks, telematics can transmit information about your driving habits to an insurer.
The use of telematics was pioneered in the trucking industry as a fleet management tool. By tracking the exact location and movement of each vehicle in their fleet, trucking companies could both monitor their drivers and coordinate logistics using live data.
More recently, telematics have been embraced by the car insurance industry as a way of learning more about how their customers drive. It can save drivers money too, but only if they drive safely.
What can telematics reveal about how you drive?
Drivers commonly use GPS to track their locations, but those systems are so precise they can actually measure a lot more than that.
How many miles you drive, what time of day you drive, how fast you go and even how suddenly you brake all can be figured out by monitoring exact changes in your car's location. All of this can reveal valuable information to insurance companies about how you drive.
Long trips, late-night driving, speeding and frequent emergency braking all indicate that a driver might be more prone to an accident.
What is telematics in car insurance?
Telematics is information tracking about your driving behavior. Using telematics, a carrier can assess how safely, how much and when you drive. The more a car insurance company knows about how you drive, the more accurately determine the cost of your car insurance policy.
If you have an accident or start racking up speeding tickets, your insurance company will recognize that you are a risky driver and raise your premium. If you're a new driver, they will assume you're high risk, just in case. By applying telematics data to your policy, car insurance companies can price their policies according to how you drive without waiting to assess whether or not you're a risky driver.
How Does Telematics Insurance Work?
Telematics data can be generated using GPS devices in your car, an app on your smartphone or a device that may be installed on your car.
If your car does not have a built-in system, a telematics device can be installed via an electrical port in your car or connected directly to the vehicle's battery. Using a smartphone, an app accesses GPS information much in the same way the Google maps or other navigation apps do.
Below are the two types of telematics programs.
Naturally, the more you drive the greater the chance that you'll have an accident. So, if you can prove that you're a relatively infrequent driver, your insurance policy should cost less.
In a pay-per-mile insurance program, the company uses telematics to monitor your mileage, so you only pay for how much you drive.
Behavioral-based insurance is more complex than pay-per-mile insurance. It involves tracking how much you drive, when you drive, whether you speed, late braking and other sudden maneuvers.
Telematics is a bit like having a parent in the car with you. The device or app can sense very quickly whether you are driving smoothly and safely or if the car is moving erratically and dangerously.
What Are the Pros of Telematics in Auto Insurance?
Because it provides them with more information about how their customers drive, telematics systems allow insurance companies to price their policies more precisely. But what's in it for the customers?
While bad driving habits are obviously a risk factor, insurance companies also consider the unknown to be a risk. So, in the absence of any clear information about what kind of a driver you are, they'll tend to err on the side of covering their risk by adding a little extra into the price of your policy.
This affects new drivers the most, since they haven't had a chance to demonstrate whether they operate their vehicles safely. That's one reason why insurance premiums for newer drivers tend to be especially high.
However, if the insurance company can use telematics systems to gather information about a driver more quickly, a new driver's insurance rates can come down sooner - if that person drives safely.
Some industry experts believe that another one of the benefits of telematics systems is that they help encourage safer driving. Knowing your driving is being monitored, and that your insurance rate will be based on how well you drive, there is incentive to drive more carefully.
What Are the Cons of Telematics in Auto Insurance?
Some people simply bristle at the idea of having their movements constantly monitored. Clearly, telematics programs are not for these people.
Also, because telematics systems measure your driving very precisely, it's sort of a put-up-or-shut-up proposition. If you can use it to prove you drive safely, you'll be rewarded with cheaper insurance. However, if you're not a safe driver, you may end up paying higher premiums.
Which Telematics Programs Are the Best?
Here are some characteristics of the best telematics insurance programs:
A discount just for signing up. As noted, the unknown is a risk factor in the eyes of an insurance company. Signing up for telematics helps eliminate that unknown, and some insurance companies are willing to offer you an instant discount for doing that.
Meaningful discounts available for safe driving. A good telematics program should be able to offer the potential of a substantial reduction in your insurance policy if your driving habits measure up.
Clear feedback on your driving habits. Good or bad, the insurance company should share with you what their monitoring says about your driving. This will give you more clarity about their pricing decisions and allow you to improve by adjusting to the feedback.
Is Telematics Auto Insurance Worth It?
This really depends on how much you end up saving by participating in a telematics program.
Since you don't know in advance how you'll be rated, base your decision on these two things:
How much does the insurance company say you could potentially save through the program?
How strongly do you believe that you can and will respond to the program by driving responsibly?
Do All Cars Have Telematics?
Can you get telematics-based insurance no matter what car you drive? Yes, because there are a few ways of introducing telematics monitoring into a vehicle.
What is telematics in a car?
Most new cars these days come with telematics systems like built-in GPS, but even if yours doesn't, there are options like devices that can be installed in a car. There are also smartphone apps that can use your phone's GPS capabilities to provide the data.
Can you get telematics insurance for an older car?
According to telematics provider Webfleet solutions, 2017 marked the milestone at which point half of new cars began having built-in telematics systems.If your car is older, you should:
See if the car's manufacturer is offering an update on the navigation system.
Call the insurance company to send a telematics device to install in the car
Get an app on your smartphone that provides telematics
See How Much You Can Save With Telematics-based Insurance
Telematics insurance can save you money in two ways: some companies offer a discount just for signing up and you could earn further discounts if you demonstrate safe driving habits.
Is it worth finding out if your driving passes muster? That all depends on how much you can potentially save if you demonstrate safe driving habits. You can also save money on car insurance simply by comparing rates. To compare quotes for free, enter your zip code below and answer a few questions about yourself and your car. You may save up to 40%!