In order to understand Telematics Insurance we must understand what Telematics is first. Telematics is an interdisciplinary field that encompasses telecommunications, vehicular technologies, road transportation, road safety, electrical engineering, and computer science. Although Telematics seems like a completely new idea to the general public telematics has been around for decades. The primary usage of Telematics has been to monitor usage statistics for fleets of vehicles for shipping companies. In the shipping industry one of the primary costs is fueling the vehicles in the fleet so any added efficiency on the road could lead to substantial savings for the company. Out of this necessity the innovation of Telematics was born and companies start gathering information about driving statistics on their fleets. Over the years this technology has become so simplified and streamlined that in can now be offered to the general public. Fast forward a couple of decades and the insurance companies are offering telematics enabled devices to their most hardcode users in order to provide greater discounts.
Telematics Insurance is a form of Usage-Based Insurance (UBI). UBI is a recent innovation by auto insurers that more closely align driving behaviors with premium rates for auto insurance. Mileage a driving behaviors are tracked using odometer readings or in-vehicle telecommunication devices usually self-installed into a vehicle port or in recent cases with late-model cars already integrated in original equipment. UBI measures miles driven, time of day, where the vehicle is driven, rapid acceleration, hard braking, hard cornering, and air bag deployment. After gathering an analyzing this data the insurer gives you a total monthly insurance premium.
The first UBI programs began to surface in the U.S. about a decade ago, when Progressive Insurance Company and General Motors Assurance Company began to offer mileage-linked discounts through combined GPS technology and cellular systems that tracked miles driven. The recent advanced in the technology have resulted in several UBI variations, including Pay-As-You-Drive (PAYD), Pay-How-You-Drive (PHYD), Pay-As-You-Go, and Distance-Based Insurance.
The acceleration of telematics insurance is resulting in the shift of insurance companies relying on large sets of historical data in order to offer a policy to consumers to relying on individual driving data based on the specific consumer to offer policy prices to the consumer. Historically mileage driven has substantially affected the price of consumer’s total monthly insurance premium. With telematics insurance insurers can better gauge the consumer’s mileage driven and offer substantial savings based on this metric instead of using the historical average mileage driven based on large irrelevant sets of data.
In conclusion, telematics insurance makes a lot of sense for consumers that have historically been save drivers that will average less than 10,000 miles a year on their vehicle. Less than 6,000 miles a year would be even more favorable. Consumers that fall into this small section of the marketplace are in the best position to take advantage of this technology because mileage seems to be the most substantial savings when using these devices. If you are historically a safe drivers and put very low mileage on their car annually then telematics insurance is for you.