Overview

Telematics allows for the accurate development of rates based on the monitoring of driving behavior of insureds. Telematics records a significant amount of data that can then be combined with traditional variables to create better, more accurate rates. This can lead to better risk selection and better driving behavior by insureds. Telematics works by the placement of a monitoring device into the car that measures the desired variables and records them. Recording can be for a limited time or continuous. Limited recording is when the vehicle is monitored for six months, then the device returned to the carrier. Continuous monitoring is when the device stays with the vehicle and monitors continuously. Continuous monitoring raises privacy issues; some people object to being monitored every time they drive.

The variables monitored are as follows:

·Mileage

·Speed

·Lane shifting

·Hard braking

·Turning

·Cornering

·Fast acceleration

·Time of day

·Territory

·Type of road

More advanced variables include the following:

·Acceleration

·Vehicle diagnostics

·Fuel efficiency

·Emissions

·Incident detection

·Crash reconstruction

·Integrated data with cellular networks

Some equipment uses GPS to monitor location; however privacy is again an issue, although it does provide better information for rating. Those uncomfortable with being watched all the time are apt to balk even more if actual locations are tracked. This gives the company every detail of where the insured traveled and when. Without GPS, the speed of the vehicle does not mean much; is the insured doing 60 mph on the highway or through the neighborhood? GPS will provide such information, including types of turns, where those turns are made, and other information. Mileage may matter, but duration driving may mean more. An insured can go ten miles in ten minutes or spend thirty minutes trying to go ten miles due to congestion and traffic lights. Alternately, thirty minutes on the road could be easy highway driving; without GPS, it is impossible to identify some important differences in variables. Territory can tell a lot, but only if GPS is monitored.

How is hard braking defined? It could indicate someone who is tailgating if it happens a lot but could also indicate a lot of stop and go traffic. Left turns are more hazardous than right turns; GPS can show the number of left turns a driver makes. Fast acceleration may indicate someone is dragging, especially if it occurs late at night. It could also mean someone is getting onto a highway. The variables must be assessed for validity.

Benefits

There are many benefits to both insurers and insureds from telematics. The data gives the carrier detailed driving behavior of the insured to use in ratemaking that is more detailed information than driving records or CLUE reports. If the insured doesn't report an accident there's nothing on the CLUE report, and someone can be a poor driver with near misses, aggressive driving, and other bad habits that don't show on any reports until the person has been pulled over or had an accident. The tracking of this data, combined with the driving record, CLUE report, and other variables allows the carrier to set extremely accurate rates.

The insured's also understand how tracking driving behavior impacts their rate; credit scoring makes no sense to many insureds, but tracking actual driving behavior makes sense. Accumulating data as an insured drives is intuitive and easily understood.

Many carriers provide discounts to those using telematics for good driving behavior. Advanced telematics allows the carrier to provide diagnostics on the vehicle such as why the check engine light is on, notify the insured that he left his lights on, or call for emergency vehicles when a crash has been detected. Feedback on their driving skills is also available; this and other telematics can improve engagement significantly and provide valuable services to the insured, strengthening the relationship between insurer and insured. A reduction in deductible, as well as driver feedback are both options to encourage usage of telematics.

A survey conducted by LexisNexis Solutions indicated that 77 percent of those surveyed would continue to engage with an app monitor if they received a below-average score. This benefits both the carriers and the insureds by improving safety on the roads and reducing claims and claim costs. Insured's benefit from telematics by receiving discounts, helpful information, knowledge that their rates are based on their activities, and possible assistance with many things.

Benefits to carriers include reduced frequency and magnitude of claims, accident detection, improved driver behaviors, acquiring preferred drivers, adding valuable services and reduced claims costs. The offering of premium discounts encourages usage and can improve driving behavior. Carriers also have the ability to surcharge poor drivers, enabling them to make rates fairer for all concerned.

Telematics is not just for ratemaking; it can be used in claims as well. When an accident occurs data can be sent to the insurer as a first notice of loss. The insurer can then send aid to the insured, immediately remove the vehicle from the scene, and even provide an immediate rental car. This reduces costs since the claim is handled rapidly. Likewise the insured is supported throughout a stressful event and aid can be called even if the insured is unconscious. The transmitted data includes certain details of the loss including time and date, weather, speed and direction of travel, allowing an adjuster to quickly decide liability. However data is not yet foolproof; false positives are possible, for example hitting a speed bump too fast could register a false positive.

This data can also be used to detect fraudulent claims. An insured could report a hit and run when the data shows the insured hit his own garage. Likewise if both vehicles record being driven to a remote location at the same time and only one is driven back, and other vehicle is reported stolen and later found burned, the carrier knows an investigation is needed.

More and more vehicles are connected and equipped to enable data linkages. This allows the manufacturer to collect data on the automobile which would then be submitted to a telematics data exchange platform, which would then analyze the data and generate a score to be given to the driver and the manufacturer.

Disadvantages

With all these advantages, it is hard to imagine there is a downside. The first issue is privacy; the fact that telematics tracks all driving behavior, including location if GPS is used, can be very threatening to many insureds. Many do not want to be tracked every time they turn on the ignition, and feel it is a gross invasion of privacy.

Storage of the data is a concern because of the potential for data to be hacked. Aside from personal information the hacker now has information on the person's typical whereabouts at a given time, making stalking and burglary an issue. More and more vehicles are connected to the manufacturer via Wi-Fi or wireless downloads in order to add functions or to upgrade performance of the vehicle. Approximately 4.6 million cars received over-the-air updates last year. Any connection however makes the vehicle more vulnerable to hacking.

Another concern is the high cost of telematics equipment. Currently most carriers are providing telematics for free in order to encourage usage; however there is a cost to the carrier for gathering, storing, and analyzing such data. This cost may at some point be passed on to the insureds.

Future

Telematics is expected to grow within the auto industry by 24 percent through 2022. The larger demand for connectivity in vehicles is driving this growth along with increasing adoption of technology for rate calculation.

Lexis Nexis has developed a new telematics model that allows for scoring an individual's driving behavior across multiple vehicles, use data from different sources, track vehicle usage patterns across multiple drivers, and return those results on an individual driver, vehicle or even household. This is available in 49 states plus the District of Columbia and uses GPS data, roadmaps and proprietary speed limit data to distinguish safe or unsafe driving behaviors.

The European Union is also growing in the use of telematics. An eCall initiative requires all new vehicles in the EU to be fitted with telematics devices by 2018. This gives insurers the opportunity to use the technology, and the eCall will automatically call Europe's single emergency number in case of an accident. It will advise responders of the location, time of incident and direction of travel, even if the driver is unconscious.