Insurance telematics is effectively lowering premiums for those who drive safely and those who have good driving behavior. In short, if you drive safely, you would not have to subsidize the bad driving habits of depraved drivers. You will only pay for the premiums that your own risk dictates.
For example, in a battle of the sexes, the Insurance Institute for Highway Safety reported in March 2012 that men were 47 per cent more likely to be involved in a fatal crash than women. Among younger drivers under 29 years old, women were half as likely as men to get into fatal car crashes as well.
Women were also safer in non-fatal crashes. The report found that for every woman driver, there were:
- 3.41 male drivers who drove recklessly
- 3.09 male drivers who drove while under the influence
- 3.08 male drivers who had seat belt-related violations
- 1.75 male drivers who were over speeding
- 1.54 male drivers who did not slow down or yield, plus roughly the same number of male drivers who did not stop at a red light.
Yet, in the traditional way of computing insurance premiums, male and female drivers were charged the same premiums.
That benefit is so clear that as many as 7 out of every 10 insurance companies in North America are planning to offer user-based insurance, which uses insurance telematics. That was according to a report from the Strategy Meets Action Group.
But are consumers biting? There are concerns of these systems violating privacy. Nobody wants anybody else to know that they have beaten a red light, or to know when they are over speeding. The system also makes it possible for your insurance company to know where you are going or where you are at any given point in time.
However, according to a Towers Watson study involving more than 1,000 consumers in different countries, drivers are interested. This is pretty much the case in the United States where mostly all insurance companies already have usage-based insurance policies available.
Interest is highest in Italy and Spain, where around 7 to 8 out of every 10 drivers are interested in telematics. This is much higher than the interest levels in the US. While respondents from the United Kingdom, Germany and France have the same level of interest as consumers in the United States. Only the Netherlands recorded a lower level of interest in telematics out of the countries included in the study. But interest in telematics is higher now than in the past. All in all, a good 55 per cent of drivers are currently very interested in insurance telematics.
That interest translates to 52 per cent of these drivers saying that they will buy a usage-based insurance policy. And if insurance companies would only promise that their insurance premiums will not go up, that number would increase to 64 per cent.
In fact, almost all or more than 90% of drivers in these countries would install the insurance telematics systems themselves. And most are open to having a third-party do the installation for them or use an app on their smartphones to do the job. These drivers are also interested in the other benefits of insurance telematics, going beyond just a way to bring down premiums to having a system with more functions and features. Most drivers are interested in security and safety features. These include theft tracking, emergency calls (which are placed automatically) and fuel efficiency tips.
But what about the number of people who are now using usage-based insurance systems? Italy has the biggest share with a market penetration at 3 per cent, as of May 2013. The United Kingdom, on the other hand, had only a 0.3 per cent market penetration.
In a country where the average citizen pays a little more than $1,700 a year for car insurance, every little bit of help counts. In Tennessee, Progressive’s “Pay as You Go” program is helping customers save an average of $150 per year. In a state that placed among the least expensive states for car insurance, where drivers were paying an average of $1,146 in 2011, the $150 discount would put it as the most affordable city to get car insurance, tied with Vermont.
On the other end of the spectrum, Progressive reports that customers using the “Pay as You Drive” program in Michigan and Louisiana – the most expensive states to buy car insurance, with around $2,500 per year – can expect substantial savings. If you prove to be a good driver, you can have your property damage and liability costs cut by as much as 25%.
In the United Kingdom, young male drivers are paying the most expensive insurance premiums, somewhere from GBP 2,000 to GBP 4,000. But thanks to insurance telematics, safe drivers are looking at savings of at least 20 per cent or at most 30 per cent from their premiums.
The demand for usage based insurance using telematics in the UK is strong. Coverbox, the biggest insurance provider that uses telematics, reports that in just two years they have installed a total of 17,000 telematics systems for their customers, with at least 1,000 more coming in every month.
In Canada, where the average driver pays C$2,500 a year, insurance telematics can help good drivers save up to 25 per cent of their premiums. That translates to a C$625 savings, which is worth several gallons of gas.
It would seem that the insurance telematics market is all set, at least in the United States. A LexisNexis Risk Solutions study in 2013 showed that half of all drivers in the country would sign up for usage-based insurance if it meant getting a 10 per cent savings on their car insurance premiums. Close to four out of every ten consumers would even leave their current insurers for a company that would cover them that 10 per cent savings. Yes, U.S. consumers have set the bar very low that insurance telematics could easily satisfy their expectations. If they only deliver half of the potential savings promised by telematics to good drivers, then their customers would be happy.
What’s more, 6 out of 10 drivers are willing to switch to usage-based insurance if the insurer gives them a three-month trial period. More than 7 out 10 would sign up if they get 10 per cent discount for the initial six months.
In Brazil, telematics serves another role
In Brazil, car insurance premiums are driven up by the alarmingly high rate of carnapping in the country. For every 100,000 cars, around seven or eight are stolen every day. Telematics in the country is not just to determine how safe a driver is, but it also helps in recovering stolen vehicles. In fact, in Brazil, usage-based insurance takes a backseat. The telematics installed in the car includes a mechanism that would stop your car from running if you report it stolen. The system works remarkably that if you report your car stolen within an hour, there is a 98% chance that you would recover it.
The thing is, insurance providers in the country can use this track and trace system to offer usage-based insurance to more Brazilians.
In other markets, the situation is reversed as more and more insurance companies are layering on added services to their usage based insurance packages.
Educate the consumers please
While consumers are now much more aware about telematics systems, not everyone is taking out usage-based insurance policies despite the potential savings they get. First, you have to be clear about what constitutes good driving behavior, which should start by explaining what the telematics are gathering. These are mileage, time of day when one drives, break statistics and their driving speeds.
Also, insurance providers need to be clear about privacy issues. They should be clear what types of data they are getting and how they are going to use it.
Some insurers are offering professional driving lessons, while Italy requires insurance companies to give usage-based insurance consumers a lower rate at the onset and more discounts when they prove that they are good drivers.
State Farm in the US offers discounts of up to 50% for good driving behavior, while also providing coaching and driving lessons for a small fee based on the data they collect.
Other added services include those that help you manage and monitor your teenager’s driving, emergency assistance and car health and maintenance.
The bottom line
What do all of these numbers mean? These numbers show that insurance telematics is making inroads, not just with car manufacturers and insurance companies, but also with consumers. Slowly, drivers are realizing that they no longer have to pay for the risks brought on by other people and that they can proactively drive their insurance costs down by driving safely. This will lead to safer roads, which will further drive down insurance costs for everybody.
More than that, the technology is much more capable of a lot of things that insurance companies can offer other services that make use of the same systems, even educating drivers about safe driving. Ultimately, these numbers would all lead to one trend: lowering the number of road accidents and fatalities from car accidents.
Cover photo courtesy of MervC.