Telematics-based insurance (TBI) calculates premiums based on individual risk assessment (instead of aggregated group data like age, sex etc.) through electronic monitoring of driver behaviour by in-car devices or smartphone apps.
Obstacles to Telematics-based Insurance
Counting the Cost?
Telematics work best in high-premium segments or in cost-conscious markets, because they must reduce premiums enough to cover the cost of installing the technology, which is difficult to do if premiums are already low. High-premium-paying groups, especially young drivers, are the early users, but those with low premiums cannot join until the cost of telematics devices falls.
Handling Big Data?
It is difficult to transmit, store and analyse big data. Existing analytical tools may even wrongly label bad drivers as good – a ‘false positive’. Data can be altered, which could enable fraudulent claims. Device standards have yet to be established, as various in-car/phone-based systems are in use. Insurers are nervous of hiking premiums for bad drivers, which they must to cover the lower premiums of good drivers.
Telematics in the UK
Telematics have the greatest impact in highly cost-conscious markets like India and the UK.
Telematics-based insurers are estimated to control 40% of the UK market by 2020.
Tracking boxes are installed for the duration of the policy, but PAYD is not widely-used in the UK because customers want to know what their premiums will be. Likewise, driving-time curfews ard other usage restrictions are unpopular.
On the other hand, PHYD policies are increasingly popular, and there are moves towards cheaper and more convenient tracking methods such as smartphone apps. Insurers also offer Value-Added Services like breakdown services, stolen vehicle tracking and eco-driving advice. Discounts are in the region of 5%-30%. Young drivers are paying on average 5.5% less. Claims costs are down 20% in the last two years, and nearly half the cheapest insurance comes from telematics-based providers.
Can you drive like a girl?
Women are statistically better drivers, and hence pay lower premiums than men. But in 2012, the European Court of Justice banned motor insurers from using sex as a factor in risk profiling. One UK insurer launched the "Drive Like a Girl” campaign, using real-time individual telematics instead of historical group data to monitor driver behaviour in order to reward good drivers with low premiums.