Let’s say you’re a safe driver.
Not only have you been accident-free, but you always obey the speed limit, and you never run a red light.
You’re the kind of person who actually comes to a complete stop at a stop sign in a deserted neighborhood in the middle of the night.
Your good motoring habits keep you and others safe, but what if those habits could also pay off in the form of lower auto insurance rates?
How would your insurance company monitor such behavior?
The answer, as it does more and more these days, lies in your smartphone.
What Is Telematics?
Vehicle telematics has been around for a few years.
It is basically a system which combines wireless communication and GPS tracking in order to monitor and record the location, behavior, and movements of a given vehicle.
This was of particular use to businesses operating a fleet of vehicles, enabling them to monitor the location and activity of drivers.
These generally consisted of proprietary devices that communicate wirelessly with operators using web-based or PC software.
Auto manufacturers started using telematics in their vehicles in the 1990s, turning the burgeoning wireless technology of the time into appealing features for potential car buyers.
The systems were strictly onboard, meaning you controlled them through your car console.
They provided basic functions like navigation in the form of the now ubiquitous GPS systems, as well as automatic notifications to the relevant authorities in the event of an accident.
What was once the domain of integrated car consoles can now be applied via an app for mobile devices, thereby expanding the technical capabilities and benefits.
Telematics currently provides additional information to drivers that can be helpful beyond getting from point A to point B.
Location services include weather alerts and traffic updates. Security features are more robust, allowing drivers to not only notify a car crash, but also to request help for other motorists, or receive roadside assistance.
Even entertainment options are being integrated into telematics.
But the most significant advance in this field—and its seamless integration to mobile devices—is the ability to record and analyze data collected from car use.
That allows for two things:
- vehicle diagnostics
- assessing the driver’s conduct on the road
Both of these benefits could help policy owner’s save money.
Vehicle diagnostics gives drivers an idea of how their car is holding up, letting them know when service is needed and helping prevent a costly breakdown.
Meanwhile, companies can use the data compiled from customers that consent to have their driving habits monitored to reward those with cautious driving habits by offering discounts.
THE FICO DRIVING SCORE
eDriving, a worldwide leader in online driver training, already employs an app that does just this as part of their driver training programs, initially focusing on the fleet market and novice and teen drivers.
Partnered with FICO, eDriving’s proprietary Mentor platform uses telematics in the form of a smartphone app to track a motorist’s speed and rates of acceleration, braking, cornering, and other behaviors on the road.
FICO then uses this data to generate a score, creating a fair and consistent evaluation of a driver’s risk.
Traditionally, your auto insurance rates are based on your FICO score, a measure of a consumer’s credit risk. In fact, it’s an industry-wide practice, as 95% of insurance companies do this. Nonetheless, by developing a “safe driving score,” FICO is establishing a new metric that can be used much like, and as a substitute for, their well-known credit score.
Using this new metric, auto insurers would be able to base policy rates on actual driving ability and habits, thereby encouraging safe driving practices.
Although still in its early stages, FICO’s safe driving score is seeking to establish a new industry standard while maximizing road safety.
THE RISE OF USAGE-BASED INSURANCE
Several insurers already use telematics to determine rates, albeit without eDriving’s smartphone app and associated FICO score.
These customers are currently saving more than 20%.
Car insurance companies such as Esurance, Metromile, Progressive, Allstate, and Liberty Mutual have integrated some form of usage-based insurance (UBI) into their available policy options.
UBI, also known as pay-as-you-drive insurance, is a type of policy that considers many factors related to a motorist’s behavior on the road before determining what a customer will pay.
These factors vary among the participating companies and are compiled using different types of devices.
The simplest type of UBI is miles-based and considers only the total mileage driven, as measured by the vehicle’s odometer.
More elaborate device-based UBI can either collect the date through insurer-provided plug-in equipment or a telematics smartphone app. These devices collect data on multiple other elements of your driving behavior, not just the acceleration, braking and cornering.
They also take into account the time of day when the car is being used (be it early morning, peak traffic hours, late night, or anytime in-between) and the types of roads being driven on (city or country).
Although these factors might not seem as relevant to your particular road behavior, they do determine the level of risk a driver is engaging in; certain hours and locations can elevate risk factors.
Even customers with an impeccable driving record cannot account for another motorist’s skills (or lack thereof).
The data collected from your registered car is then analyzed, along with the data gathered from other customers, to quantify the amount of risk and to establish rates based on those conclusions.
By interpreting information from multiple sources, companies can reduce risks and costs for their customers.
Given the ubiquity of smart devices and our ever-increasing engagement with apps in our lives, it’s clear that usage-based telematics-driven auto insurance will continue to grow.
In fact, some researchers predict it will become the dominant rate calculation model by 2020, evidenced by the number of insurance products already on the market.
So the next time you’re about to come to a rolling stop at that stop sign in the middle of the night, take a look at your smartphone lying on the passenger seat and think twice.
The minor actions you take will significantly influence your car insurance payments.
In the meantime, you can still get the best auto insurance rates and customer service from Esurance, our advertising partner.
Esurance offers a host of excellent discounts as well as cutting-edge online tools and mobile apps that are second to none, including their DriveSense usage-based auto insurance program.