Everything You Should Know about Telematics & Its Impact on Car Insurance

Posted on: Feb 26, 2022 | | Written by:

Everything You Should Know about Telematics & Its Impact on Car Insurance

Published on February 25, 2022. EST READ TIME: 3 minutes

Work from home has become the new norm since the outbreak of Covid-19. Despite life slowly getting back to normal, work from home has become the new work culture. It is more convenient, saves time as well as infrastructural costs. Working from home saves your daily travel to work, which means you are driving your car occasionally but still paying the full premium. Does it make sense to pay a hefty premium for your online car insurance policy when you are not driving often?

Customized or ‘Pay as You Drive’ car insurance helps in such a situation. It uses your car’s odometer reading to calculate the premium. The concept of usage-based motor insurance is gradually picking up in India. Usage-based insurance, with the help of telematics, calculates premium based on the distance travelled by you and your driving behaviour. The less you travel or the better you drive, the lower will be your premium.

What is Telematics?

Telematics is a tracking technology that uses the principles of telecommunication and informatics. A telematics system stores and transmits driving-related data. It has three main components:

1. Telematics Control Unit -

It consists of a Global Positioning System that tracks the location of the vehicle. This control unit also receives and stores information from the vehicle, such as vehicle speed, fuel consumption, trip distance, trip duration, braking, faults, and engine data.

2. Cloud Server -

Data collected in the telematics unit is transmitted to a cloud server using a wireless or cellular network. Here, the data is stored in the form of packets.

3. Mobile Interface -

The cloud server transmits the data to a mobile interface through a web server. Here, the data is analyzed, and a report is prepared that tells about your driving behaviour.

A telematics system can be implemented using different technologies, such as

● OBD based -

A small electronic device is installed in the vehicle to an On-board Diagnostic port. This device stores information from the vehicle and transmits it through a wireless network to a master database.

● App-based -

It uses a smartphone’s GPS and telematics app to store vehicle data. It is more affordable but more susceptible to fraud.

● Blackbox-based -

Black box is an electronic device mounted in the vehicle to store trip-related data. It is mostly used in fleet tracking to monitor connected cars. It has a high installation cost.

Telematics and Automobile Insurance

Automobile Insurance companies, with the help of telematics, are using customers’ driving behaviour to offer customized premiums. Telematics gives useful insights into two significant aspects of driving.

● Driving patterns such as speed, braking, and tendency to get into accidents.

● Vehicle maintenance using engine data.

Using these insights, insurers reward responsible drivers by lowering premiums and giving additional benefits. Telematics helps insurance companies to analyze the risk profile of a driver and customize both offline and online car insurance policies with an appropriate pricing model specific to the customer. It helps insurers investigate the claims better with real-time data analysis and identify fraud claims.

Telematics-based vs. Traditional Car Insurance

Traditional Car Insurance	Telematics Based Car Insurance
Costs are based on statistics like age, location, credit score, car model, make, and engine capacity.	Costs are based on analysis of driving-related data and technology.
No device installation is required.	It requires the installation of a tracking device.
Premiums are calculated irrespective of how much and how you drive your car.	Premiums are calculated based on the distance you travel and your driving pattern.
Premium is the same irrespective of your driving behaviour.	It rewards responsible driving behaviour by lowering premiums and offering benefits and charges higher premiums for rash driving and not following traffic rules.
Difficult to identify fraud claims.	Fraud claims are easily identified with the help of data-driven investigation.
High operational costs as physical inspection is required every time a claim is filed	Lower costs as an inspection can be done in real-time based on the data provided by the telematics system.

Advantages of Telematics-Based Auto Insurance

● Offers the same coverage as traditional car insurance at lower costs because of accurate risk measurement.

● Prompts better driving behaviours and improves road safety.

● Saves fuel and repair costs.

● Reduces the cost of business with inspection based on data rather than physical inspection.

● Helps in providing value-added services based on driving behaviour.

● Real-time data is very useful in sending an emergency warning signal during an accident.

● Helpful in identifying fraud claims.

● Reduces vehicle theft.

● Benefits both insurer and insured.

Indian Scene for Telematics-Based Insurance:

In India, telematics is mostly used by fleet management companies such as cab services, logistic companies, etc. It keeps their vehicles connected to a central system and helps in monitoring trip distance, duration, route, and driving behaviour. Tracking the vehicle helps in managing expenses, maintenance alerts, and improves productivity.

IRDAI’s pilot project, which launched ‘pay as you drive’ and ‘pay how you drive’ usage-based insurance for a limited period, resulted in many insurance companies rolling out telematics-based car insurance plans and free installation of the telematics device. Many online car insurance companies also offer a discount on premiums for vehicles already installed with telematics and anti-theft devices.

Conclusion

If you drive well and follow road safety rules, you can reduce your car insurance premium irrespective of your previous driving history. Your past risk score will not determine your insurance premium because your driving behaviour is tracked in real-time or at present time. Hence, real-time tracking encourages drivers to be more responsible on road translating to fewer claims. Telematics-based insurance benefits not only the insurer and the policyholder but many stakeholders such as car manufacturers, RTA, and garages. Telematics technology, therefore, has a very wide scope and can be used for better insurance penetration and awareness.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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