Telematics-based car insurance is a tech-based productive way of pricing insurance policies. It will tilt the scale in favor of relying on relatively present data (if not real-time data) as compared to the currently-prevalent model of depending on historical and generalized data for underwriting car insurance policies.
Traditional insurance looks at your past car accident and charges you more premium. Telematics-based insurance will be wary of the past but will also take into account that you are a safe driver in the present and charge premium accordingly. Implementing telematics-based car insurance would help you to pay less for insuring a car if it is not used extensively.
The above-mentioned scenarios can become a reality if insurers have reliable data and the authority to underwrite car insurance policies in a completely personalized manner. Technically, all this is possible thanks to telematics.
What is Telematics?
Telematics is defined as the branch of information technology which deals with long-distance transmission of computerized information. Nowadays, the term ‘telematics’ has been associated with the automobile industry, especially regarding monitoring and tracking.
Telematics is widely used in commercial enterprises. For example, in GPS-enabled fleet tracking, a truck with an installed telematics device captures information pertaining to its route, engine, mileage, performance, etc., sends it to a cellular network, which is then transmitted to the company’s assigned server and displayed on a device used for monitoring the vehicle’s movement.
Telematics and Car Insurance
If your car has a telematics device installed in it, the device will capture data and transmit it to your car insurance company’s server. There, it will be stored and analyzed to offer you personalized car insurance premium. For example, the speed at which you were driving, the vehicle’s idle time, fuel use, etc. will be captured and used for underwriting. It also comes in handy at the time of claim settlement as the time, speed, braking, etc. during an accident will also be noted and analyzed.
Telematics-based Insurance vs Traditional Insurance
Traditionally, car insurance is calculated based on the vehicle’s make, model, variant, its engine’s power, the location where it’s driven, age, and claims history. There is no scope for much personalization. As a result, traditional insurance follows a generic way of underwriting car insurance policies.
On the other hand, telematics-based car insurance offers high-level personalization. This is how insurance companies are offering Usage-Based Insurance (UBI) and Pay As You Drive (PAYD) Insurance globally. This means, the car insurance premium for a car driven in a month for just 1,000 kilometers will be less than that of a car driven for 10,000 kilometers.
Benefits of Telematics-Based Insurance
- Accurate premium pricing
- Affordable policies
- Encouraging safe driving
- Customized policies
- Better claim processing
- Scope for integrating with other technologies
Telematics-based insurance is still in its nascent stage in India. There are technological, regulatory and privacy-related challenges in the industry.
The rise in InsurTech companies is a promising step in implementation of this modern way of insuring cars. However, there might be regulatory issues to be dealt with. For example, Insurance Regulatory and Development Authority of India’s (IRDAI) fixed premium pricing model. If regulatory issues are resolved, it won’t take time for insurance companies to build supporting infrastructure as there are various global models available for inspiration and there is capital available for execution.
Consent and intent are the keywords in the Indian scenario. IRDAI’s consent regarding regulation, policyholders’ consent when it comes to sharing data, and insurers’ intent regarding privacy of that data will determine the route ahead for telematics-based car insurance.
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