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No matter how you look at it, the coming of telematics – the little black boxes that tell your car insurance company how you drive – represents a sea change in the industry. In the past, companies couldn’t exactly ride around with each customer for months to assess their driving habits. But new technology lets them do just that.
Insurance companies use actuaries – statistical wizards who slice and dice mountains of data – to find risk factors and set rates accordingly. Some are obvious: teenage boys are more reckless on average than older women, for example. Some are less so, like married women being a safer bet than single ladies. These things aren’t always true, but they’re true enough to make them a safe bet, which forms the backbone of insurance. A 17-year-old might drive like a grandmother, while his grandmother drives like Evel Knievel, but he’ll pay the higher rate.
New monitoring devices could change all that, allowing for far more personalized premiums. Instead of determining rates based on a person’s age, location, gender, etc., telematics let companies tailor rates to an individual’s behavior behind the wheel. For safe drivers with unsafe peers, that’s great news, as the savings could be substantial. There are some potential downsides though, so read on before calling your insurer to sign up.
First, be aware that insurance companies have their own definition of good driving. Most devices collect data on just a few behaviors: miles traveled, what time of day you drive, and your braking patterns. These are great indicators of how likely you are to get into an accident, but they’re not necessarily within your control. Even the world’s safest driver wouldn’t qualify for a discount if he or she worked the graveyard shift and commuted two hours a day.
If you do travel at odd hours or commute in lots of stop-and-go traffic, think twice before installing a monitoring device in your car. There’s currently no penalty if you’re deemed high-risk, but that could change. The devices are expensive, so doling out discounts without raising prices for bad drivers is a losing proposition for insurance carriers in the long run.
Some insurers are already moving in that direction. The general manager of usage-based insurance at one major carrier was quoted in a Forbes article on the subject, saying “Next year we will likely move to a model where we can offer a discount to more people. Some, maybe 80 percent of the people, will get a discount, but then some people will actually pay a little more.”
Everyone’s doing it…
Justin Dangel, founder and chairman of Goji, sees both good and bad in the trend toward more personalized coverage, saying “Some drivers will get cheaper insurance, which is great. But I worry about adverse selection. It’s possible that at some point, the only way you’ll be able to get insurance is by agreeing to use a monitoring device.” That means – not to guilt trip anyone – the more drivers who sign up, the harder it will be for others to say no.
Long story short? If you drive mostly during the day, are easy on the brakes, and don’t mind plugging in, telematics will probably save you money. If not, there’s a chance you’ll see an increase at some point, so you may want to stay offline.
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