How Telematics Is Changing an Industry
Usage Based Insurance (UBI) or Telematics, is a new way to insure your vehicle and calculate your rate (or discount) based on your actual driving behavior. With newer cars, customers plug a small device into a data port underneath the dashboard. This device may be equipped with GPS, sensors, accelerometers, interoceters, and inertial based devices. Information from the car, like how hard you press on the brakes and how fast you drive, allows for a more complete picture of how you use the car. Unfortunately, if more than one person uses the car, your results could be skewed by poor driving habits like excessive speed or sudden braking, as well as offroad driving and sudden burn-outs.
Much of the UBI environment has been dominated by Progressive Insurance, which has had a device for several years and is licensing its patented technology to other insurers. Because telematics can provide such a good picture of how cars are used, and how people actually drive, it is expected to become the most common way to rate drivers by the year 2020. The “connected car” movement may merge with other big data signals for real-time alerts, or even such futuristic privacy intrusions as telling you that your brakes are wearing thin and the shop up the road is offering you a discount. Alternatively, a parent may get a text message about the rising level of humidity combined with tectonic activity in a vehicle parked at the drive-in.
Emergency uses of telematics can also help save lives. If sensors indicate an accident, airbag deployment, or sudden inertial changes, they can contact an insurer or emergency service that would provide quicker first responses. Even in the event that the car engine suddenly “dies” the owner may find that a tow truck is on the way before they are able to get the vehicle to the side of the road.
By 2020, Most Auto Insurance Will Be Telematics-Based
What does usage based insurance hold for the future? For one, as more and more cars get these devices installed, you can expect overall traffic speeds to stick closer to the speed limit, and not just where the speed cameras are mounted along the highway. The true revolution in UBI is that factors such as education level, age, credit score, and driving experience will take a back seat to actual usage. This may be of benefit to poorer young people who can pay less because they are good drivers, even if they haven’t yet gotten a college education, credit card account, or enough years behind the wheel to be considered a lower accident risk. On the flip side, regular reporting (e.g. intrusive Orwellian nanny-state meddling) to the car owner/parent will generally reduce the penchant for pushing the envelope.
People may of course be driving better because they feel like they are always being watched, and the minute they drift over the posted speed limit a report is going to go to the commissars at the national insurance agency. You may not be able to change behavior with punishments, but if you threaten people with higher insurance costs they tend to regulate themselves.
Could Monitoring Lead to Rationing?
No discussion of UBI and telematics tracking would be complete without the question of monitoring versus rationing. There are already some cities in the world that use license plate trackers to monitor who is going downtown and whether they are allowed to drive there on that day. The use of UBI leads to similar questions of whether your car would stop working if it were in a restricted area, if your presence in a certain zone was prohibited either due to legislation or a court order, and if there would be a negative effect on your policy if you went through a place with a higher number of accidents or thefts. Many UBI policies already limit users to a fixed number of miles in a month as part of the cost structure, but what if you found your movements being monitored as a response to a “crisis” where people could only buy so much gas or take so many trips? During the Second World War there were windshield stickers given out to cars for gas rationing and usage allotments, in an effort to conserve fuel and supplies (like rubber for tires) that could be used in war production. The usage of electric and hybrid cars means that fuel tax revenues are going down, so usage-based data may become a novel way of taxing consumers for miles driven, or penalizing those with too much of a “carbon footprint” if their cars do not fit a certain social definition of what is “clean.”
For automotive insurance, continual monitoring and tracking is preferred by insurers who are hoping to see improvement in driving habits while also assigning motorists to the appropriate risk profile. The advantages to the driver go beyond simple discounts, since these tools are sometimes sold as standalone vehicle health monitoring systems that can tell you if there are adverse events happening in your engine, antilock brakes, transmission, or any other part of the Electronic Control system that could be getting readings on subtle an critical aspects of your car’s maintenance profile. Drivers usually get a branded smartphone app or a website link that shows a dashboard and an “automotive x-ray” containing a graphical representation of the car’s assorted systems. This can be very useful when a “check engine” light comes on and you want to see if it is a serious issue which may require stopping your car and calling a tow truck.