Telematic/Usage-Based Insurance

So, just how does Telematic/Usage-Based Insurance work?

Usage-Based Insurance (also known as UBI) is a type of auto insurance that tracks mileage and your driving behaviors. UBI can be measured in various ways. It is often powered by an in-vehicle telecommunication device that is self-installed using a plug-in device. Sometimes, it is already integrated into the original equipment installed by car manufacturers, or it can also be available through mobile applications. The basic idea of UBI is that a driver's behavior is monitored directly while the person drives, allowing insurers to more closely align driving behaviors with their premium rates.

The telematics device will collect individual driving behaviors such as the number of miles driven, the time of day and where the vehicle is driving (GPS). It also detects rapid acceleration, hard braking, hard cornering and even airbag deployment. The insurance company then assesses the data collected and charges insurance premiums accordingly. For example, a driver who drives long distances at high speed will be charged a higher rate than a driver who drives short distances at slower speeds. With UBI, premiums are collected using a variety of methods, including utilizing the gas pump, debit accounts, direct billing and smart card systems.

Discounts given due to responsible driving are often combined with secondary benefits like roadside assistance and vehicle theft recovery. Recent accelerations in technology have increased the effectiveness and cost of using telematics, enabling insurers to capture not just how many miles people drive, but how and when they drive too.

The pricing design for UBI shifts greatly from that of traditional auto insurance. Traditional auto insurance depends on actuarial studies of grouped historical data to produce rating factors that include driving record, credit-based insurance score, personal characteristics (age, gender, and marital status), vehicle type, garage location, vehicle use, previous claims, liability limits, and deductibles. Premium discounts on traditional auto insurance are usually limited to the bundling of insurance on multiple vehicles or types of insurance, insurance with the same carrier, protection devices (like airbags), driving courses and home-to-work mileage. UBI programs attempt to convert the fixed costs associated with mileage driven into variable costs that can be used in conjunction with other rating factors in the premium calculation. UBI has the advantage of utilizing individual and current driving behaviors, rather than relying on aggregated statistics and driving records that are based on past trends and events, making premium pricing more individualized and precise.

There are many advantages of UBI including increasing affordability to the lower-risk driver and the ability for consumers to control their premium costs through their driving habits which also benefits society by providing safer overall driving. The use of telematics helps insurers more accurately estimate accident damages and reduce fraud by enabling them to analyze the driving data (such as hard braking, speed, and time) during an accident.

With these advantages also come some challenges. UBI programs have raised privacy concerns. As a result, some states have enacted legislation requiring full disclosure of tracking practices and devices. In addition, some insurers limit the data they collect. Although not for everyone, acceptance of information sharing is growing as more mainstream technology devices (such as smartphones, tablets, and GPS devices) and social media networks (such as Facebook and Twitter) enter the market.

If you have any questions regarding Telematics and UBI technology, please call ENUFF Insurance today to discuss your interest or concerns.