Technology

How Telematics Technology Affects Insurance Rates

Like most people, you probably value your privacy. So if you’re having second thoughts about telematics, you need to know that you’re not alone. It’s perfectly natural to worry about devices that can monitor your driving behavior.

However, it’s also a good idea to keep an open mind about new technology, especially if it comes with benefits. Telematics does offer several advantages, not only for insurance companies but also for car owners. As a driver, it’s important that you familiarize yourself with telematics and how it affects insurance rates.

Telematics in Cars

Telematics systems in cars use a small device plugged in the vehicle’s onboard diagnostic port. The device can collect and transmit your driving habits to your insurance company. Below are some of the data points that a telematics device records:

  • the length of time you have driven your car
  • your average speed
  • the number of times you stepped on the brakes hard
  • the number of times you engaged the anti-lock brakes
  • the length of time a service light is on

Your insurance company will use the information to determine your risk level and adjust car insurance quotes accordingly. 

Myths About Telematics

The reason why some people are hesitant to use telematics is because of the myths that surround it. Below are some of the misconceptions about this technology:

  • It can void your car’s warranty. Using a telematics device will not void your car’s warranty because it doesn’t involve tampering with your vehicle. Telematics devices are also approved by car manufacturers.
  • It monitors everything. Telematics devices don’t have superpowers. They don’t track your every movement. They don’t track a driver’s location, only the vehicle speed, fuel economy, and other conditions.
  • It’s only for drivers who can’t be trusted. If your insurance company suggests that you use a telematics device, it doesn’t mean that they don’t trust you. You’re also not being forced to use telematics.

You must separate fact from fiction when it comes to telematics. One fact that you should know about telematics is that it can reduce your insurance rates as long as you focus on driving safely.

How Gathered Data Is Used

You may get a discount on your insurance plan if you choose to use telematics on your vehicle. Beyond that, telematics can also lead to a reduction of your insurance premium. If data gathered by the telematics device shows that you’re a safe and defensive driver and that you’re taking excellent care of your car, your insurance company can reward you with a lower rate.

Alternatively, if the telematics device tracks that you’re a reckless driver and that you don’t take care of your car, your insurance company may increase your premium. The telematics device can monitor if you’ve been speeding or showing signs of distracted driving. Your rates can also increase if you drive more miles than what you have reported to your insurance provider.

A New and Better Way

The use of telematics departs from the old way of determining insurance premiums. Without telematics, insurance companies base their prices on parameters such as the age of the vehicle, the vehicle’s engine capacity, and the purpose of the vehicle. With the advent of telematics, insurance providers could add more parameters to the premium-pricing decision-making process.

In the old scheme, car owners who used their vehicles frequently and those who only used their vehicles sparingly pay the same premium. With telematics, car owners who use their cars less will get lower premiums because they are deemed less risky. The use of telematics leads to a more meaningful way of assessing risk. It paves the way for a more accurate method of determining price.

Usage-Based Insurance

The use of telematics in the car insurance industry is based on usage-based insurance. It’s an idea that says that driving should determine how much you need to pay.

So if you’re someone who tries to become a better driver and who takes care of his car to make sure that it’s safe to drive, you’ll see the benefits of telematics. If you think you need to improve your driving, telematics can also help you.

Through a tracking device, you’ll know the areas that you need to improve on. Now that you understand telematics better and how it affects insurance rates, you know it’s not something you should worry about. Besides lowering your insurance rates, telematics can also make you a better driver. And if all drivers strive to become better, the roads will become safer for everyone.

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