Traditionally auto insurance premium calculations were done on fixed cost based estimation analyzing historical data like the driver and car’s age, vehicle details, driving history, previous claims, car loan liabilities, tickets issued for defaulting on the driving regulations etc. In such a scenario, the insured usually ends up paying more to the insurer than ever claimed which often discouraged people from opting for auto insurance. To change this setup an auto insurance program called usage-based insurance (UBI) was developed where this fixed cost was converted into a variable cost and after analyzing this factor with many others, a more justifiable premium calculation could be derived on. A relatively newer option, UBI comes in various types like PAYD (Pay as you drive), PHYD(Pay how you drive) etc. about which you can read in detail on www.insurancejournal.com.
The telematics-based insurance analysis includes a monitoring device which records the driver’s behavior and transmits it to the insurance company database by using a modem. Some underlying factors recorded are the speed of the vehicle, acceleration, cornering, application of brake, geolocation, fuel consumption and mileage.
Although the effect of this technology on the privacy of the information of the customer is still questioned by many, telematics, through its new perspective of charging the customer based upon their driving habits, encourages drivers to improve their driving. At the same time, the insurer is also benefited, as they can assess the risk better and faster, making the claim process smoother. Due to the vigilance and safety measures followed by the drivers in order to maintain a good claim policy, the volume of claim cases also reduced drastically.
The benefit of telematics-based insurance system includes:
UBI products motivate the carrier to offer a discount of up to 10% to their customers based on specific driving performances. This way, they can attract more customers. Insurance companies also charge a lesser premium to good drivers with savings reaching up to 30% based on driving behaviors. This way telematics improves the customer response time as well as promotes customer satisfaction and retention.
At the bottom level, it discourages accidents because of safer driving measures taken by the insured. Since the insurer has readily available information on the vehicle, the claim processing is much faster and accurate. The chances of fraud and manipulation by drivers is also lowered. Depending upon the nature of the job and driving patterns, the premium of high-risk vehicles and locations is higher compared to others. These devices also enhance technology sophistication of the vehicle by providing services like GPS systems and route guides, encouraging more and more customers to install it.
Social and environmental benefits
Since driving patterns are continuously observed, it encourages the drivers to drive safely which reduces the chances of severe accidents. Through these devices, the location of the vehicle can be easily tracked. Therefore, the cases of auto theft have also decreased drastically. As the drivers with the best performance are rewarded with a lower premium, there is always a driving determination to maintain better driving behavior among drivers. Fuel consumption is reduced because drivers use safer and congestion-free routes more often and vehicle maintenance is done efficiently and on time because these systems display the vehicle health indicators on a regular basis.