As digitalization increases in our everyday life, insurance companies also try to move with the time and they came up with a way to make your car insurance custom-tailored, and as fair as it can get. They call it telematics or black box insurance, which gives insurers the ability to automatically generate underwriting rules and calculate live premiums based on the type of driving or behaviour the individual performs. It’s either based on the aforementioned pre-built in black box, a dongle device plugged into your OBD port or a smartphone app. All options track how well, safe, conscientious, when and where you drive, giving a true reflection of your behaviour, which will be reflected in your monthly premium.
This actually sounds too good to be true, right? Well, we would’ve probably agreed with you a couple of years ago, however this is really happening. So let’s get down to business and ask some of the vital questions and try to give you a deeper dive view of how this all actually works and what makes it possible!
How does it actually work?
As I mentioned before, information is either collected from the black box or OBD device inside your car or an mobile phone app, which needs to be downloaded on your smartphone and utilises the GPS and clever features already built into the phone. These devices can basically take many data feeds and inputs from these devices into consideration which will inform the rating engine on how you drive against their KPIs:
☑️Where you drive (your location and therefore the types of roads you’re using)
☑️ How long you’ve been driving (do you take enough breaks during a long trip)
☑️ How rapid or measured acceleration is
☑️ How harsh or smooth the braking is
☑️ Cornering speed
☑️ Miles driven
☑️ The time of day (rush hour, night time or during “quiet hours”)
☑️ Weather conditions: icy, rainy, windy, calm etc
☑️ Traffic information
☑️ Fast lane change
Here, some insurers might specify on driving hours or other components to avoid times when accidents are most likely to occur (e.g. late night/early morning/heavy rain/driving for a long time without a break). Of course, you are still insured 24/7 however, sometimes it’s unavoidable to drive at certain times but it could potentially result in a lower score for your premium.
Why should I use telematics?
By using this data, telematics provides us with a way of reducing the discrimination against certain groups of people who would always receive a high premium based on the fact that they belong to a high risk group (i.e. young/old drivers, inexperienced drivers, less frequent drivers with low annual mileage, having a new car). What actually matters now is how smart and safe you drive irrespective of all your personal traits. If you will, it’s a financial incentive to drive less aggressively and safely. Concurrently, it makes the roads and driving safer for everybody.
And there’s more!
A myriad of car insurance companies already let you choose between two insurance plans: pay-per-mile (which is basically a daily rate plus a per-mile rate for each mile you drive) OR pay-how-you-drive (evaluates the safety of your driving).
So far so good, but what do they actually do with my data in detail?
First of all, the rating engine will receive your driving data, which will be used to assess your car insurance risk based on the data collected and then it calculates the cost of a renewal premium based on the very accurate data.
Secondly, your insurance company can and will react whenever the black box respectively the smartphone app senses a strong impact because this could mean that you just had an accident. Therefore, they will call you to make sure that you’re ok or will actually contact an emergency to get you the help you need as fast as possible. In case of an accident, they can also use the collected data to better reconstruct the accident and recover money from the person responsible.
Last but not least, the black box can function as a tracker in the event of car theft. It aids you and your insurer to locate your car.
Can I see the information recorded by my box?
Yes, for sure. Information such as speed, acceleration, braking, time of day, taking breaks on long journeys, motorway miles and trips in general can be reviewed via mobile app or customer account. This enables you to review not only your costs but also your driving style and become more aware of your habits so that in the future you might as a matter of fact make adjustments to your driving behavior to grow into a safer driver (always remember that this can decrease your premium).
We should probably not beat around the bush here. Although it was mentioned in the beginning that telematics are really conquering the market right now, black boxes have been around several years already and so far, nobody took a big interest in them.
For a myriad of years, the conceptual leap which insurance companies wanted to make when it came to black boxes was simply too big.
So what are you telling me right now is that despite the fact that the concept of black boxes makes sense, it was never successful in the market?
Then, what’s the point of reading this blog post anyway?
Yes, it is true that black boxes somewhat dropped in popularity because they were simply not advanced enough due to a scarcity of updates for software or hardware. Still this is no reason to worry or stop reading because insurance companies did not just give up on telematics, they found an even better solution. Modern mobile telematics.
The ascent of smartphones prompted a plethora of companies to look into the smartphone’s abilities to collect, store and process data. Smartphones are capable of collecting a wide range of useful data (starting with driver behavior over geo-analytics, to the ability to use this data for AI and predictive models), they are affordable, frequently updated and one basically solely needs to install the insurers tracking app. There is no delivery time, no need to look for a special engineer and no time required to fit it into your car. All in all, it is 90% cheaper than a generic black box.
However, we have to admit that smartphone data collection still misses the great accuracy which black boxes boast. Nevertheless, for an overwhelming majority of mankind, the smartphone has become essential in everydays life, so wherever we go, our smartphone will be right with us and ensures that we can capitalize on a tailor-made motor insurance premium.
Anyhow, some drivers might still try to exploit their insurance plan by only using the app when they are driving safely and turning it off while speeding or behaving irresponsibly. We should also not forget that yes, there are countries where data transmission is not a problem because a 4G network has been in place for several years but in countries (e.g. Germany) a telematics solution that counts on 4G is simply not feasible now.
We therefore believe that it is of utmost importance to focus on a solution combining the black box, which still provides data more reliable than smartphones (at this point) and a smartphone app which is the easiest way to connect users to their driving data and insurance plans. There are already car companies out there who provide pre-installed black boxes in new cars which solely have to be connected to an app. For instance, in the United States it’s mandatory to have a pre-installed black box in your car, already since September 2014. The European Union wants to go down the same road and plans a corresponding law for 2022.
So whether you opt for the good ol’ black box, a smartphone app or a highly reliable combination that interconnects the benefits of both technologies, the bottom line is that mobile telematics will definitely go viral in the next couple of years. Thus, the earlier you jump on the bandwagon, the earlier you can exploit all its benefits. Some of you might, of course, raise the concern of data protection and privacy violations. However, our insurance companies already know a good deal about our personal lives and naturally, they will have to value your privacy in order to remain trustworthy. It is up to us to distinguish between when we should allow companies to collect our data and when it is better to circumvent it.
Here, we believe sharing is of utter utility. It comes with the benefit of saving money through personalized policies and concurrently, drivers and insurance companies can leverage on safer driving since fewer accidents will occur leading to less claims needing to be logged and paid. For insurance companies, 70-80% of their costs stem from claims. Hence, by mitigating and managing risk profiles in a much more granular way, claim loss ratios can be reduced and insurance companies have a much healthier outlook on the future.
If you’re an insurance company, MGA or broker, looking to explore the technology behind achieving this type of underwriting, and are curious as to which technology you will need, give tigerlab a call, and we would love to show you how we do it!