Telematics Technology Drives Innovation in Insurance Industry

During a recent webcast presented by The Council of State Governments in collaboration with The Griffith Insurance Education Foundation, experts discussed vehicle telematics technology and its impact on the insurance industry.

“The real question is, ‘What is telematics?’ The term has been around for a long time, and I think if you asked five different people what it meant, you’d get six different answers,” said Steven Bayless, vice president of technology and markets at the Intelligent Transportation Society of America.

Sean Slone, CSG director of transportation and infrastructure policy, said telematics refers to technologies that allow for the sending, receiving and storing of information about a motor vehicle by telecommunication devices.

“Telematics can allow for the measurement of actual driving habits based on a vehicle’s real-time driving data, and that appears likely to have a significant impact on traditional auto insurance models in the years ahead,” Slone said in the introduction to the webcast, “Vehicle Telematics and Usage-Based Insurance: An Overview for Policymakers.”

Kevin Shaver, an assistant professor of economics at Duquesne University in Pittsburgh, described four vehicle telematics models. A dongle is an insurer-provided, self-installed device—such as Progressive’s Snapshot—that captures driving information, including speed, time of day, miles covered and rate of acceleration or deceleration. These devices are often used for a limited amount of time. The insurance company collects the information then uses it to determine insurance premiums.

“The dongle is probably the most common,” Shaver said. “In fact, I think there’s no doubt about that at this point.”

Embedded equipment, another telematics model, is installed by the vehicle manufacturer. Shaver discussed General Motors’ OnStar as an example; State Farm’s Drive Safe and Save program partners with OnStar to collect information.

In addition, smartphones—the third category discussed—can be used in telematics as standalone devices or with embedded technology, Shaver said. Finally, black box technology is professionally installed and provides the richest data, but the technology is not widely used in the United States.

Bayless said that in the future a driver’s route choice might depend on a number of factors, including safety.

“New technologies can re-enforce safe driving behaviors in real-time—not just incentivize them but also encourage them—by providing feedback whenever there is a near crash or another event that occurs,” Bayless said. “You can provide feedback whenever a driver is taking curves at too high a speed or doing other activities in the car besides driving.”

Besides crash avoidance systems, “you have this new potential for cooperative crash avoidance, where vehicles can actually coordinate activities,” Bayless said.

Traffic lights at an intersection could become more intelligent and adaptive, detecting the flow of traffic and providing right-of-way to larger flows and providing basic crash avoidance “in a pinch,” he said.

Shaver said benefits of using telematics include opportunities for insurance companies to price more fairly, and telematics could reduce claim costs. Data would allow for improved accident damage assessment and insurers would be better able to identify fraud.

The more consumers understand about the data—and how the data would and would not be used—the more likely they are to purchase products that use telematics, Shaver said.

“Two big concerns, really, are the use of the data itself by insurance companies and then the privacy associated with that, and who owns that information,” he said.

Shaver discussed the importance of allowing drivers to compare rates across companies, using their telematics data, and disclosing the impact of telematics on rates.

Policymakers should also maintain a broad perspective when writing regulations related to vehicle telematics.

“Most of the action right now is in auto insurance,” Shaver said. “There’s no reason to think that these types of technologies won’t spill over to homeowner’s insurance or life insurance and, so, when thinking about how to promote innovation you want to have a framework in place that promotes innovation broadly within insurance and isn’t too narrowly focused to a particular product that exists currently.”

The full webcast is available in the CSG Knowledge Center here.