Insurance Telematics

Firstly, what is insurance telematics?

Insurance telematics is the process by which data is collected and analysed to enable driver behaviour to be assessed, and the level of risk presented by each individual to be calculated. This allows an insurance company to assess individual risk much more accurately and therefore provide a much fairer price to the proposer.

Why has it become of critical importance now?

Telematics in the car insurance industry has now become a practical option through the reduction in the base price of the technology for in-car monitoring. Secondly, legislative changes are increasingly impacting the industry. The European Court of Justice’s gender ruling in March means that from December 2011, car insurance companies will lose the ability to price differentially when it comes to gender. There is also a possibility that car insurance companies will soon lose the ability to differentiate by age.

As such, car insurers need a different means by which to assess risk and price insurance premiums accordingly, and through the analysis of behavioural data driven by insurance telematics, this has now become entirely possible.

Why is the direction that the industry is currently taking fundamentally flawed?

Providers have tried to minimise the amount of data that must be collected in order to make a prediction on driver ability. The first suppliers to market have arrived via the existing fleet telematics networks and have therefore opted for low volume transmission of data – sampling typically every 30 seconds and additionally, exceptional events. This rate of sampling is too low to enable a true picture of the driver’s behaviour to be established, and the exceptions themselves are typically set at an arbitrary level by the insurer, with no objective basis for determining what a true exceptional driving manoeuvre is.

For a full explanation of MyDrive’s views on insurance telematics, please click the following link to see detailed commentary on the industry.