Telematics Data In Auto Insurance Rating
The Other Shoe Has Dropped: Surcharges vs Discounts
Like it or not, telematics auto insurance data collection and rating methods are here. The ascendancy of the concept behind telematics reminds me of an old Arabian adage about a camel and a tent. It goes, “if the camel get his nose in the tent, the rest of him is sure to follow.” Here is what I mean because, the other shoe of telematics monitoring is now dropping and is influence the rates insurance customers are paying.
Companies like Progressive have advanced and promoted their Snapshot™ device as a way to get discounts up to 30%. It works like this: For about 30 days a small device monitors your driving activities. You return the device to Progressive and poof, Snapshot™ provides a brief history of how you drive, how suddenly you stop or brake, how hard you accelerate, and other measurements. With this information Progressive can determine the size of any discount you might be eligible for and applies the discount to your policy with them. Except, they now admit it might lead to surcharges and higher rates. You see, by letting the company monitor your particular driving for as little as 30 days, it gives them confidence to predict just how you will fit into their auto insurance rating system and gives them a prediction of your potential risk as a vehicle driver. When I was trained on the Progressive Snapshot™ system no mention was made of surcharges at that time. That is now changing!
Telematics describes just about any communication back to a host on driving or vehicle movement. It is provided back to a measuring or reporting device and ultimately back to the people who put the device in the truck or car, in our instance, back to the insurance company. The trucking industry has used forms of telematics for years. Devices were once common on the hubs of drive wheels that indicated the number of rotations, simple but useful information. Now trucks have devices built into their systems to report all kinds of information including speed and location and the performance of operational systems. For some years now our modern autos have been built with on-board computer data systems that collect and report vital statistical information when queried. These systems are used to help diagnose mechanical issues with the car by your dealer and auto manufacturer. Lawyers have also began used this telematics information to prosecute and defend cases claiming negligence after an accident has occurred because your car is recording your driving behavior in some instances. This includes how fast someone was going at the moment of an accident.
Recognizing the huge potential to learn more about driving behavior, Progressive and other companies have turned these measuring systems into usable data points for setting rates. Almost every major insurance company is researching or adopting a telematics rating system of their own so more are sure to come to the rating party in the months and years to come and will want you to participate in your own hanging, so to speak! Let me explain!
Telematics, which started out as a promise of discounts for the right to monitor your driving for a period of time, is now also known to result in surcharges or higher premiums and some insurance companies are reluctant to admit this development. In an article appearing this month in an authoritative periodical, Progressive admitted that telematics information can also be used to generate a higher premiums (which I call surcharges). From my perspective surcharges on auto insurance based on telematics data was inevitable. No one should be surprised that insurance carriers collecting telematics data wouldn’t soon use this usage data to raise premiums right along with those that they reduce. As the body of collected data continues to grow I predict that the prominent promise of lower rates will fade from discussion and will become less of a justification in any sales conversation. Moreover, I wonder how long telematics-using insurance companies will continue to advertise discounts without also having to admit surcharges are possible too? Truth in Advertising, right? I say that because it is clear that telematics data generated on how you use your vehicle will eventually result in more sophisticated rating systems and this will end up being a zero sum game for most consumers and insurance companies. I believe that the best records deserve the best rates but telematics rating schemes suggest companies are aiming to preempt actual driving history in favor of a prediction! And since the exact nature of the data collected is still unknown, and because we don’t know all of the factors and how they are weighted in the telematics data collection programs, it is only fair to be cautious and skeptical. I’m skeptical right now.
Telematics data that results in a premium increase for you is a self-inflicted injury. Just the same, we should also consider any savings you may earn today to be less than a reward when viewed over the long run. At some point I think it is a fair assumption that carriers will expect you to produce telematics data for a rate just as they require other pertinent rating information. Is this the camel nosing into the tent?
Telematics data collection in personal auto insurance is still in the early stages of deployment. As the body of collected information increases more and more behavior is cataloged it will make the rates that you pay all the more difficult to figure out. I predict, eventually, the balance between surcharges and discounts will equal out and some people will unintentionally be responsible for raising their own rates. Using a device like Passport™ from Progressive is voluntary today. This current telematics trend may become a requirement. Then what?
There is a whole segment of our population that wants to impose ideas like telematics data collection upon us and they are advancing other ideas that probably won’t help most customers in the long run. Another scheme working in some corners is the concept of paying for insurance at the pump with each gallon of gas you use. These collectivism concepts further remove the reward for behavior control just as much as they will fail to serve as a deterrent to reckless or careless driving behavior and we’ll all end up paying for this detachment of behavior and consequence.
There are a lot of old adages that seem apt in the case of telematics data.
- Foot in the door
- Domino effect
- Give them an inch…
- Slippery slope
No matter how we characterize telematics, it is a concept that will not go away. In fact, it is a trend that is growing. I caution you to consider just how much you can gain from providing insurance companies yet another way for your driving to be categorized. As an example of a concept that had some initial benefits, but comes off its wheels at others, is credit scoring. Credit scoring is a system that has now come around full circle to be a system that almost completely ignores a zero claims and violation history and charges a higher cost because a client doesn’t have perfect credit (and only about 3% of us do). Read that to say that the best experience doesn’t earn you the best rates! Does telematics data collection and rating really propose to be any different than credit scoring in the end? All I can say is that if you let the nose of the camel into your tent, be prepared to share your tent with the rest of the camel. And telematics data collection is the proverbial camel with a nose into your tent. Drive safely!