Telematics in Insurance works on the principle that insurance premium should not be a standard cost for all vehicles by factoring only the type of the vehicle and the years it has been used. Rather, it should calculate the premium based on the usage and driving pattern of the vehicle.
Telematics insurance works by fitting a small device called “black box” in your vehicle, say a car. Once fitted, the device can record average speeds at which the car is driven, distance travelled in a period, time of the day when the car is used, the routes the car travels through and the quality of roads therein.
These devices also monitor the number of times the car exceeds speed limits, the number of times a sudden break is applied or unusual acceleration of the car takes place. By collating and transmitting such data, the “black box” enables the insurers to calculate the probability of drivers getting involved in an accident.
How does Telematics change life for consumers and Insurers?
Telematics Insurance in gaining in popularity in the US and the UK and customers see significant savings in insurance premium after opting for telematics insurance. As per the British Insurance Brokers Association, the number of telematics insurance policies has risen by about 40% in the year 2015 alone. And especially after the Bloom of E-Commerce Industry, Customers are able to do a research and apply for Car Insurance Online
It is extremely popular among the digital and tech-savvy millennial population that prefers “as-a-service” models.
The customers that opt for telematics insurance benefit as follows:
1. Save money on car insurance premium: They can save money on their car insurance premium as per their usage patterns and behaviour habits on driving.
2. Special incentive to drive carefully: As car owners get incentivised for driving safely and the benefit is monetary and tangible, it gives them a special incentive to drive carefully and safely. This enhances the chances of the safety of the insured person, upkeep of the vehicle and promotes safe driving.
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3. Data to make claims processing seamless: The data collated by the black box gives telematics insurers enough data about the insured person to process claims faster and enhance the brand loyalty of the insured customer.
The Insurer/ Insurance company would be able to generate immense value as below:
1. Use data and analytics to compute and price risk better:
By leveraging telematics, the Insurers would be able to understand how to price risks for each customer. This tailor-made approach to underwriting as compared to the traditional “one-size-fits-all” method would help insurers to compute and price risk better, per customer and retain customers in the long run.
2. Reduce the number of claims and associated costs: By ensuring better underwriting and pricing of premiums as per user behaviour and driving patterns, telematics insurers can significantly reduce the number of claims and associated cost hence enabling them to be profitable.
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3. Retain customers and enhance the ratio of conversion of prospects:
With a clear and concise way of computing insurance premiums and enhancing transparency in insurance, telematics insurers would be able to retain more customers and build a trustworthy brand. They would also enable conversion of more prospects into customers thus augmenting acquisition as well.