Telematics in Insurance – Moving to a Variable Risk/Reward Premium Model
Telematics is the use of wireless devices and "black box" technologies to transmit data in real time back to an organization. For automobiles, installed or after-factory boxes collect and transmit data on vehicle use, maintenance requirements or automotive servicing. Telematics can also provide real-time information on car crashes and locate stolen vehicles. Telematics serves as the platform for usage-based insurance, pay-per-use insurance, pay as you drive (PAYD) insurance and pay how you drive (PHYD) programs for fleet insurance. There are new models which are emerging, called "mobile telematics," in which smartphones connect to the car's computer system to pull data and send this to the insurer using the phone's wireless network.
The basic premise of telematics in Insurance is to move towards a variable auto insurance regime based on the driving pattern, drive behavior, usage, car & environment conditions from the conventional fixed premium auto insurance.
In conventional auto insurance, the risk classification and premium charged thereby is calculated on the vehicle attributes like age and value, owner/driver details like age, place of residence and past driving data based on Government records. There are certain discounts which are then offered based on vehicle features like safety equipments, theft control devices, etc. However there are certain issues with the conventional auto insurance as current risk rating is based on past realized losses and data that might not be an accurate indicator of future happenings and future operation of the vehicle cannot be predicted reliably. The fixed premium charged may actually turn out to be too high for the insured as in reality the vehicle might be driven by a safe driver under good road conditions and the vehicle usage might be only for travelling from residence to office and back most of the time which drastically reduces the risk of incident happening.
Telematics opens up an entirely new paradigm and potentially reduces the premium outgo for the insured by classifying risk based on additional metrics captured on the vehicle/owner/driver during actual driving. Thus Insurers would be able to accurately price risk and attract profitable new customers based on information from Telematics while providing several value added services like important statistics on the driveway and real time tips on safe driving like speed alerts, vehicle diagnostics along with alternate route suggestions. The insured would also get benefitted by being aware of their usage and driving behavior which will ultimately lead to lower premium outgo. The carriers will also provide the "opt in" programs for switching "On/Off" for the real time drive data that are transmitted. So depending on the preference set by the insured, the insurance companies can alternate between charging fixed premium and variable premium.
The basic premise of telematics in Insurance is to move towards a variable auto insurance regime based on the driving pattern, drive behavior, usage, car & environment conditions from the conventional fixed premium auto insurance.
In conventional auto insurance, the risk classification and premium charged thereby is calculated on the vehicle attributes like age and value, owner/driver details like age, place of residence and past driving data based on Government records. There are certain discounts which are then offered based on vehicle features like safety equipments, theft control devices, etc. However there are certain issues with the conventional auto insurance as current risk rating is based on past realized losses and data that might not be an accurate indicator of future happenings and future operation of the vehicle cannot be predicted reliably. The fixed premium charged may actually turn out to be too high for the insured as in reality the vehicle might be driven by a safe driver under good road conditions and the vehicle usage might be only for travelling from residence to office and back most of the time which drastically reduces the risk of incident happening.
Telematics opens up an entirely new paradigm and potentially reduces the premium outgo for the insured by classifying risk based on additional metrics captured on the vehicle/owner/driver during actual driving. Thus Insurers would be able to accurately price risk and attract profitable new customers based on information from Telematics while providing several value added services like important statistics on the driveway and real time tips on safe driving like speed alerts, vehicle diagnostics along with alternate route suggestions. The insured would also get benefitted by being aware of their usage and driving behavior which will ultimately lead to lower premium outgo. The carriers will also provide the "opt in" programs for switching "On/Off" for the real time drive data that are transmitted. So depending on the preference set by the insured, the insurance companies can alternate between charging fixed premium and variable premium.
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