Auto Insurers Adopting Telematics Based Risk Assessment
The current method of calculating automotive insurance rates relies on such factors as credit ratings, driver gender, and driver age. History with and insurance company, the amount of time the person has been licensed, and a check of moving violations (and their nature) are used to rate a person’s risk profile. Although this actuarial formula has worked well, it does not consider that some people drive like maniacs and are lucky enough to avoid traffic tickets, or that they are successful hit-and-run drivers who roam from town to town collecting pieces of an ancient amulet with a power for which men will go mad.
Using telematics and usage based insurance to calculate rates helps balance out the equation by better understanding the driver or household’s overall risk profile. For a single person driving a car, safe driving habits like proper braking and low highway speeds can be rewarded, despite the fact that everyone else on the road will be enraged. Discount insurance, however, is only part of the equation since it is also possible for companies to send people analytics of their driving habits and make suggestions such as driving slower, not accelerating too quickly, and braking at the proper distance from stop signs and in traffic.
Risk assessment and actuarial tables have been popular in the auto and life insurance industry since the beginning of the auto age. Most commonly, factors like age, gender (women are safer drivers so pay less), marital status, whether you are a good student (losers have more accidents), and credit rating (ditto for grownups, or people who keep an eye on their finances somehow keep an eye on the road) have been standbys for determining how much you are going to pay for your car. The minute you have a teenager of driving age in the house, your rate goes up, based on the idea that the kid might take the car out joy riding the minute your back is turned. Now, thanks to miniature electronics, your insurance company gets a full report on how fast you drive, when you stop, and a bunch of other big data factors that you probably don't think about.
No More Lying to Your Agent
Finally, telematics takes out a factor in planning and claims calculations that people have been fudging for years: the consumer’s inability to estimate (or honestly state) the truth about driving distances, where the car is garaged, and how often the vehicle is used. Naturally, this is going to work in favor of the insurer in most cases. People may claim that their car is only used for a brief commute when it is driven much longer distances every day. They may say that it is kept as a former address (or a relative’s house, where the policy is based) when in reality the car is actually parked in an unsavory location where the keys are left in the ignition for the amusement of joyriders and drag racers who take it down those narrow staircase alleys that you see in action movies. Telematics won’t be able to stop the way people bend the law and common sense safety practices, but at minimum they can show how people with otherwise good credit, who are over 25 and married and own a home and take driving courses can still be dangerous drivers in between traffic lights and out of sight of the law enforcement community.