Pay As You Go Car Insurance – The Future Of Car Insurance Rates?

Telematics is the process of gathering data on your driving habits and transmitting them to your insurance company to determine your risk and thus your final car insurance rates.  While this used to sound like science fiction, telematics for car insurance is no longer just an idea that may happen someday.  This new technology is gaining acceptance and traction and it promises to have impacts on our society far beyond just insurance rates.  The impact of this technology could save your life one day.

Telematics is also known as pay as you drive, or usage-based insurance rating.  It has been a bit of a rating nirvana that the insurance industry has been eyeing for a long time.  Originally insurance companies only hopes that they could determine how many miles a year that you drive and use this information to provide you with a car insurance rate that more accurately reflects your driving risks.  But with the development of this technology, telematics will now go far beyond that original goal. 

Telematics and car insurance have hit several brick walls in their merging process over the years.  The main limiting factors were cost, data management, and privacy.  In the early years, the cost to install a device in the vehicle that could transmit data to the insurance company only really made sense for large corporate fleets of vehicles.  But over time these costs have come down and the devices are now very affordable in a one car installation situation.  Some insurance companies are working on apps for your smartphone to do all of the work so that no installation costs come in to play at all.   Data management was a problem until recently.  With the expansion of smart phones, more and more bandwidth has been created which allows the flow of the huge amount of data that any car will collect on its driver.  Some pay as you drive systems are now able to track and transmit over 100 data points on your driving at any given moment.   Privacy is still the last hoop to jump through, but that problem may be fading away.  This is because today’s youth seem to not have a great a concern or desire to protect their privacy.  This is already evident in the number of phone apps that track your location and post them publicly for others to see.

Telematics will allow the insurance company to adjust your car insurance rate based on your driving habits.  The data collected is now so rich that they can track how fast you accelerate, how fast you drive, how hard you brake or take corners in addition to where and how many miles you drive.   All of this data allows the insurance company to much more accurately predict the likelihood of you causing an accident than they ever could by simply studying  your credit score or the number of speeding tickets that you have been issued. 

Trucking companies that have installed telematics in their fleets, almost universally report that accident rates go down right away.  It turns out that drivers who understand that everything they do and everywhere that they go is being measured and monitored, suddenly become much safer drivers.  Can this effect be extrapolated out  to the population as a whole if everyone were to have a telematics device in their car?  We don’t know for sure but there seems to be evidence that this may be true.

Of course telematics won’t benefit everyone.  If the car insurance world has inadequate information on which to base their rates today, then that means that some people are subsidizing others.  If the insurance company doesn’t know for sure if you are a safe driver or a risky one, then you can be sure that the safe drivers are subsidizing the riskier ones.  This means that as telematics become more common, some drivers will save money as a reward for their safe driving habits, while other drivers, or those that refuse to use telematics will have to pay more to make up the difference.  This is why I firmly believe that eventually telematics will be ubiquitous in the insurance world and in fact, cars may soon come equipped with the telematics devices as a standard part of the vehicle.  Eventually it will be much more, if not simply too expensive to purchase a car insurance policy that is not based on telematics.  The insurance company will soon come to the conclusion that the old fashioned rating system blinds them from seeing the bad risks out there.  When that happens, they will charge a much higher rate for those policies.  Eventually no one will be able to afford a policy whose rate is not based on telematics data.

If telematics do change our behavior behind the wheel and force us change our habits to drive more safely, then I think that this technology can be a real game changer.  Just how long it will take for this technology to be the standard way car insurance rates are calculated remains unknown.  But I’ve learned not to underestimate just how quickly something like this can become the norm.    It’s hard to imagine that just a few years ago most people had never heard of a smartphone.  Telematics could make this jump into ubiquity just as quickly.

At Clinard Insurance Group, we work hard to help all insurance buyers become informed consumers.   We would love to help you with your home insurance, your car insurance, your life insurance or even your business insurance policies.  Please call us toll free, at 877-687-7557.