The calculation of auto insurance premiums is very complex for insurance companies since they need to estimate the probability of drivers filing claims based on a very large number of variables. The most important of these factors is the profile of the driver, including his driving behavior, and the cost of the car. Since driving behavior can be extremely variable, insurance companies are forced to make assumptions based on the average behavior of driver segments. The use of telematics has finally made it possible for insurance companies to base their quotes on the actual driving behavior of the customer and remain competitive while managing their risk efficiently.
Telematics – Taking the Guesswork Out of Insurance Premium Calculations
According to https://www.statista.com, as many as 12 million vehicles were involved in accidents in 2018 in America. While the government uses educational programs and deterrents in the form of license points and fines to improve driver behavior, insurance companies rely on past statistics of driving behavior to incentivize or penalize drivers with certain profiles. However, despite the vast amount of data used by insurance companies, it remains a rather inefficient method since only classes of drivers can be profiled not their actual driving behavior. However, the use of telematics gives insurance companies’ current data on specific driver’s driving behavior based on which, they can give more realistic insurance premium estimates and the best cheap car insurance.
What Data Does Telematics Provide Insurance Companies?
Telematics can provide insurance companies a massive amount of details on how a particular vehicle is being driven on the roads in real-time with the help on an onboard device and GPS. Among the data insurance companies can get from the black boxes fitted on the cars are the number of miles that car runs, the time of the day the trips are made, the routes the car takes, on-road car behavioral characteristics like speed, acceleration, braking, and cornering, as well as the maintenance performed on the car. This data helps the insurance company to offer pay-as-you-drive insurance products customized to the individual driver. In effect, the customer gets a quote based on his driving profile and not on an average of drivers of his profile.
Black Box Insurance Coverage
Insurance policies based on telematics data are available for the same covers as that of conventional covers like third-party, fire and theft, and comprehensive. The number of extras that you can add on also remains unchanged and will depend on the insurance company in question but will involve paying extra. While long and frequent driving as also habitual driving during late hours when accidents are more common are not barred by block box insurance covers, they may lead to your premium rising if they become a habit.
While black box insurance policies represent the risk profile of the driver more accurately, it may only benefit high-risk drivers who are safe. This typically means that currently, these policies will benefit the under-25s and those with conviction records. Customers opting for telematics-based insurance policies will also need to account for the extra costs of fitting, removal, or repairs of the telematics device. A careful evaluation of your driving habits will reveal whether these policies will be to your benefit.