What is insurance telematics?
Insurance telematics is most frequently used to track how people drive. It works by collecting, measuring and transmitting a number of data points. Typically, a small GPS-based device inside the vehicle tracks its locations and monitors a number of parameters, such as speed, distance, and location. Insurance telematics can also keep track of how a person drives by monitoring braking and cornering. By monitoring how drivers perform behind the wheel, insurers can implement usage-based insurance (UBI) programs across their customer base. Armed with more data and insight, UBI programs have the potential to upend the traditional auto insurance business model.
What are the business benefits of insurance telematics?
Insurance telematics has many business benefits, including:
- Accurate pricing: With insurance telematics data, insurance carriers can price premiums and policies more accurately, so they truly reflect the risk of insuring their customers. Accurate pricing is the foundation for profitable business operations and keeps rates stable. Insurance telematics can help avoid the significant rate swings that result in customer erosion.
- Risk reduction: Insurance telematics makes it easier for providers to collect large amounts of data, and to build more sophisticated risk models to reduce their overall risk exposure. If insurers do take on higher risk, they can be confident that the premiums cover their exposure.
- Better, faster decision-making: By integrating insurance telematics data into core systems—policy administration, actuarial and underwriting, billing and claims, as well as new action-oriented policyholder portals—more predictive and faster decisions can be made, even in real time.
- Increased efficiency: With insurance telematics, manual and time-intensive work can be streamlined or eliminated as processes are automated with accurate geospatial and vehicle data.
- New product development: Usage-based insurance programs can provide discounts for customers by rewarding them for good driving behavior. Insurance telematics supports new pay-as-you-drive (PAYD) programs, which are becoming increasingly popular with customers.