Insurance companies want to hook devices to your car that monitor your driving habits, and that could actually be a good thing. Such data collection could be a good thing because it could actually lower your car insurance rates.
The new data collection technology, or telematics, could allow insurance companies to tailor auto insurance policies to individuals and their driving habits. That could be very good news for responsible drivers, who are often penalized because of factors such as age or sex.
Telematics could lead to a revolution in the way that car insurance rates are set. Currently, the only way insurers have of telling if you are a good driver is your driving record. That record only shows how many tickets or accidents you have and doesn’t necessarily reflect your driving habits.
How Telematics Will Help Drivers Save Money on Car Insurance
The data insurance companies currently use to set rates is based on classes of people and not individuals. That means the rate is set for the entire class of people rather than individuals.
A classic example of this is men under 25, who generally pay a higher rate because younger men generally get into more accidents. This system is actually very unfair because there are many men under 25 that are responsible drivers. The majority of young men are being penalized with higher insurance rates because of an irresponsible minority.
Using telematics, insurance companies could tell which men under 25 are responsible drivers and which are not. That means the insurers could offer a lower rate to the responsible drivers and a higher rate for the irresponsible ones.
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How Telematics Could Help Most Drivers
Telematics could benefit most drivers because experts think most people are paying too much for car insurance. The average driver pays too much for car insurance because insurers don’t have a good way of separating the good drivers from the bad.
Under the current system, a responsible 22-year-old man who never drives over the speed limits might pay more than a 45-year-old who constantly speeds and runs red lights. Telematics would let the insurance company know how the 45-year-old actually drives and charge him more.
Another advantage to telematics is that it could allow insurance companies to offer lower rates to persons who display other risk factors. Currently, many insurers raise rates for those with low credit scores. Telematics could allow insurance companies to identify persons with low credit scores who have a good driving record and offer them lower premiums.
How Telematics Works
Telematics works by attaching a wireless device to your vehicle. The device monitors your speed and the amount of miles you drive and transmits that information back to the insurance company.
That could help you save money if your driving habits suddenly change. Your rate might fall if you start working from home and stop commuting, because you will be driving a lot less. It could also raise your rates if you started driving more because you got a new job farther from your home.
A telematics device could also tell when you drive, which can be a risk factor. Persons that drive after dark increase their risk of getting into an accident by around a third. Telematics could allow insurers to offer those who don’t drive at night a lower rate.
Insurance companies could use telematics to identify patterns of good driving so they could offer lower rates to those individuals. Joe Reifel, an insurance industry consultant, told the BBC that telematics could save some drivers between 30% and 40%.
When Will Telematics Come
That’s the good news about telematics; the bad news is that it isn’t widely available yet. A few insurance companies, like Progressive, are experimenting with telematics devices.
One challenge will be getting drivers to install the devices on their cars. Many people might welcome them for lower insurance rates, but others might reject them. Some insurers might require telematics devices at some point, which could lead to legal challenges.
There are also serious privacy concerns because some people will view telematics devices as surveillance. They might be afraid that authorities or others could track their movements via the device. Recent disclosures about NSA surveillance might make it harder to implement the policy.
It’ll be some time before you can use telematics though; only around 2% of U.S. car insurance customers have access to the devices, Reifel noted. Although that number will soon grow, experts believe that 10% to 15% of car insurance policyholders will be using telematics devices by 2017.
Technology is about to change the way car insurance rates are set, and it could help a lot of people save money. Perhaps we should welcome some data collection efforts by insurance companies.