Insurance companies acknowledge telematics.

By E.B. Black

Insurance companies in Europe and some in North America are starting to charge premiums based on individual drivers’ performance. It’s called usage-based insurance (UBI) and it’s shaking up the vehicle insurance business.

UBI is possible only because of onboard telematics that can give insurance companies far more accurate information than they have ever had before.

To learn more about UBI, I attended the Insurance Telematics Conference in Chicago in September. Here’s what one of the conference keynote speakers, Robin Harbage, of the risk-management firm Towers Watson, told the insurance experts in the room: “Vehicle telematics are coming at us fast.”

Most carriers already know the value of telematics, from an ops perspective. Telematics can let you identify operating conditions, maintenance requirements and driver behavior. And with that knowledge you can wring far more efficiency out of your assets. For instance, it’s not unusual for a fleet to glean between 10- and 20-percent increases in fuel mileage through effective use of telematics.

And because fleets are cautiously but steadily investing in telematics, one supplier said that driving culture is being transformed, without a lot of management work or effort.

Over time, he said, you will see dramatic improvements. Telematics will lower the need for on-road police resources, insurance-company loss-prevention staff, and roadside inspections. Cash-strapped provinces and states are going to embrace the widespread use of telematics as a means of lowering their budget costs.

It’s just Good Business 

It’s easy to see why insurance companies love this technology.

Telematics data will allow insurance firms to improve claims handling, detect and deter fraud, reduce theft, and improve emergency response times to the scene of an incident.

Insurance firms will also be able to establish and bill for a fleet’s true mileage and exposure based on a driver’s behind the wheel performance. Premiums, therefore, will be a true reflection of actual risk.

Insurance premiums are historically developed based on a driver’s safety record (MVR), the number of miles driven, and the number of years of driving experience.

When it comes to developing insurance premiums for fleets, an insurance company collects and reviews the fleet’s CVOR, the drivers’ individual MVR, the fleet’s mileage data, cargo/commodities hauled, and the fleet’s three-to-five-year loss experience.

Telematics will let insurers change how they capture, look at, and develop insurance premium for commercial fleets.

Instead of your insurance company having to complete an in-depth on-site fleet survey, it will simply review the telematics vehicle data that you provide them, which can be captured and communicated in real time.

The U.S. DOT sees great benefits to the wide spread use of telematics and said just that at the conference. They believe if driver behavior is monitored, it improves road safety.

In Europe, manufacturers Daimler-Chrysler, MAN AG, Scania, Volvo, and Iveco agreed to give third parties access to vehicle data using the CAN-bus as a connection. In the USA, currently 17 states permit UBI programs.

And the list continues to grow.

This past year, more than $1 million in premiums went to UBI programs Stateside: Hartford, Allstate, State Farm, and Progressive, all offer UBI programs in the USA. Sprint now provides a turnkey insurance telematics offering for car drivers.

Industry experts say that the “pay as you drive” market has reached its tipping point and say it will grow 50 fold by the end of this decade.

Will it lower your rates?

While there is a chance that UBI might decrease personal auto insurance premiums for drivers who correct and manage their behavior, the industry’s not saying the same about commercial rates.

In fact, you can thank Hurricane Sandy in part for the fact that the insurance industry as a whole will probably be looking at rate hikes in the near future.

As for telematics’ affect on rates, the insurance industry’s response is that fleets who further enhance safety programs with careful use of telematics will get the best rates possible.

Also, telematics can lead to less accidents and fewer claims which means less insurance-premium hikes.

Finally, because telematics means improved operational efficiency overall; in particular routing, fuel, wait times, lower maintenance costs and drivers behaving less aggressively so they’re easier on your equipment, your investment in the technology will have an early and substantial ROI.

E.B. Black is the pen name of an executive working in the Canadian Trucking Insurance Industry.