Most people are familiar with the ‘black box’ in planes that allows investigators to reconstruct what occurred during a plane crash. Now, motor vehicles can carry a similar ‘black box’ that transmits far more detailed information. Telematics allows companies to better assess risk to tailor their products for their customers, and can provide a number of advantages to the safest drivers.
By tracking driver habits, insurance companies can more accurately make predictions based on driver behaviour and offer products that provide benefits to both the insurance company and customer.
Telematics is capable of transmitting an enormous amount of information about driver behaviour. This includes speed, fuel consumption, G-force, cumulative mileage and the types of trips taken, as well as the date, time and location where all of this occurred.
Whilst some privacy concerns have been raised regarding the information that telematics tracks, insurance companies already gather a great deal of information about their customers. Telematics allows a company to offer a more flexible policy that is individualised for each driver.
Traditionally, insurance companies have set prices based on broad generalisations like age and gender. The problem with these generalisations is that careful drivers may be part of any demographic, and they may end up paying extra for policies that do not reflect their actual driving habits.
Telematics can assess risk in a number of useful ways including determining when and where people drive and how often. For example, there may be less risk associated with an individual driving at a time when the roads are mostly clear versus driving at rush hour, and a customer who only drives a couple of days per week may offer less risk than someone who spends many hours per day in their vehicle.
Customers may also have the option of using smartphone apps. These apps do have a few disadvantages over the black box devices, however the customer must remember to turn the app on and off whenever they get into or out of their insured vehicle. Smartphone apps are also more limited in the amount of information they can transmit compared to the black box. Despite this, these apps are cheaper than other technologies for collecting data and can offer certain advantages such as video capture and a rich potential for further development. Many experts feel that most of the disadvantages can be mitigated or balanced.
Due to the fact telematics is relatively new, and changing rapidly throughout the world, the regulations surrounding its relationship to motor insurance are in a state of flux as well. As the field advances, governments may impose further regulations on how data is used whilst also taking measures to protect individuals from overly high premiums if they choose not to have a telematics device in the vehicle.
Regulations may also challenge the use of smartphones in a vehicle, even as information-gathering devices. At present, in most of the world, regulations have yet to fully catch up with the technology. Insurers will most effectively persuade regulators by demonstrating advantages to consumers and even to society as a whole. Among those advantages is the encouragement of safer driving as a result of monitoring.
The use of smartphones and other devices in telematics points to growing collaborative ecosystems in which new technologies are developed alongside insurer needs. It is expected that insurers will collaborate with car manufacturers in the development of onboard diagnostic systems. Wireless carriers, app developers and telematics’ providers all stand to benefit from insurers growing the use of the technology as well.
By and large, telematics has been a boon to both the insurance industry and to consumers, although growth has been uneven in different parts of the world. For example, China is expected to be a significant market in the decade ahead although telematics is currently not in use there.
Europe, Italy, the Benelux countries and Spain are the largest market due in part to the willingness of consumers to use telematics. Telematics-based insurance has been available in the United Kingdom since 2008 and by 2015, all new cars manufactured in the EU will have black box technology.
With South Africa leading the way, a number of countries in Southern Africa are increasingly implementing telematics, with Kenya and Nigeria the largest markets in other parts of the continent.
Various companies in the United States are building their telematics offerings while regulations are largely decided on a state-by-state basis.
Telematics as a cornerstone of the motor insurance industry is likely to continue growing as cars are increasingly manufactured with onboard diagnostic systems. By providing more accurate data about individual users as well as encouraging safer driving, it is a trend that stands to benefit consumers, insurers and society as a whole.