Most drivers have at least heard of telematics — even if they have no clue what utility or benefit telematics might bring them. But as it’s not exactly “mainstream” (yet?), we decided to get to the bottom of both telematics myths and realities.
How Telematics Works
Telematics, in the world of auto insurance, consists of vehicle plug-in devices that collect and transmit information about a user’s driving—things like average speed, hard braking, and even the time of day a driver is on the road. The device plugs into a vehicle’s onboard diagnostics port (OBD II), which is usually near the steering column. (All vehicles built after 1996 have OBD II ports, and they’re often used by mechanics for diagnostic and repair purposes.)
Which Insurance Companies Use Telematics?
Progressive’s Snapshot program might be the most well known, but most major insurers now offer optional use-based insurance programs for their customers who want to pay less by proving they are better-than-average (or, better-than-their-demographic-information-would-predict) drivers: Allstate’s Drivewise, National General Insurance’s Low Mileage Discount, State Farm’s Drive Safe & Save, Nationwide Insurance’s SmartRide and Metromile‘s pay-per-mile policies.
In almost every case, the insurance company tells customers who opt into such programs that they will earn a percentage off their premiums by being safe and careful drivers. None of these companies explain exactly how discounts are calculated, but most look at behaviors like hard braking (an excellent predictor of a driver who’s likely to get into a crash), time of day (12:00 a.m. to 4:00 or 5:00 a.m. are the least safe times to be on the road), and high speeding (over 80 mph).
3 Myths about Telematics
Telematics Myth #1: Insurance Discounts Are Substantial
When you research an insurance company’s use-based insurance program, they’re often quite vague about the available savings, using ranges and percentages rather than hard discount numbers. In many ways, this makes sense: telematics programs offer discounts based on driving habits, so before your company knows your habits, they can’t tell you exactly what you might (or might not) save. Further, all drivers are different, so specific savings numbers are elusive.
However, The Zebra’s exclusive auto insurance data shows that nationally, signing up to use telematics will only save drivers around $9 per year (that’s less than 1%) on their auto insurance premiums. Residents in Washington, DC save the most regionally, with an average annual discount of about 2.6% from telematics, but many states see no difference at all in insurance rates from implementing telematics. However, for drivers who implement the tools and drive smoothly, infrequently, and (by all definitions as determined by the insurance company) safely, savings could certainly be greater. In short: don’t expect to save just from plugging in a telematics device — your driving behavior has to be up to snuff for your wallet to benefit.
See The Zebra’s 2016 State of Auto Insurance for more data.
Further, we spoke with Neil Richardson, The Zebra’s resident insurance expert about what kinds of drivers are likely to save, and how much of a discount they can really expect. His answers bust the myth that big savings are available to lots of people, but they will also help you assess whether you might be wise to opt into a use-based program:
One major insurance carrier has told their agents that customers could save up to 30% on their premiums by enrolling in the use-based program. Actual savings for most customers, the company told agents, was 12-15%, although no stats have been made public. Discounts were calculated from 30 days of driving data (not just 30 calendar days), and after that period, customers would qualify for a partial discount on their remaining premium based on their driving data. Then, at renewal, customers would receive the full amount of the discount off of their total premium.
Neil says that sudden starts or stops (also called “hard braking”) have the biggest role in discount calculation and they end up being the reason so many people don’t see much of a discount. The sensor is incredibly sensitive and, Neil says, misleading: “Drivers aren’t aware that bumpy roads, potholes, and even swerving to avoid an object will register as a ‘sudden start or stop’ and work against their discount.”
Who Should Use Telematics?
“Telematics programs are super beneficial for people who live close to work, don’t drive late at night, and do not live on dirt roads or travel roads with lots of damage,” Neil says.
The bottom line: if you’re truly a good and careful (and typical—meaning no one working the graveyard shift) driver, you might be able to save a little enrolling in a telematics program, and you’ll definitely get feedback about your driving habits that you could use to improve.
Telematics Myth #2: Cars with Telematics Devices are Likely to be Hacked
Telematics is a relatively new technology. All cars manufactured after 1996 have OBD II ports, but plug-in telematics devices used for the purpose of monitoring driving have only been around for a handful of years.
We spoke with Nino Tarantino, CEO of Octo Telematics, who told us one of the biggest things consumers worry about with telematics is that cars with these devices are likely to be hacked. “Consumers worry their new car may be at risk to unexpectedly accelerate, brake, or shut off while driving, or a hacker may attack them because they have a UBI (use-based insurance) telematics device installed,” Tarantino says. And while the risk of hacking exists, the real-world risk to consumers appears to be small and the fear is blown out of proportion: According to the InfoSec Institute, which specializes in information security training, beyond the scary stories, there are not many empirical cases of real world car hacking, except those done in a lab environment to push for exposing vulnerabilities.
Technology carries risks; smartphones can be easily hacked, as of course can computers, and email, and the list goes on. “When properly implemented, insurance telematics programs should not create any additional exposure to consumers’ privacy or data risk beyond the exposure we receive when we send emails or use cell phones,” Tarantino says.
And, there are things technology consumers can generally do to lower their risks. Lock your car’s doors when leaving it unattended, pay attention to vehicle manufacturer recalls, use well-recognized and well-recommended hardware, software, and service providers (for those offering telematics) and follow their procedural recommendations, and of course never write down account passwords on sticky notes.
Some people won’t ever be comfortable with telematics devices monitoring their vehicles, just like people aren’t comfortable using credit cards online, and some still pay cash in brick-and-mortar stores, but it seems the exposure risk can be considered equal to that of other wireless technologies.
Telematics Myth #3: Insurance Companies Gather Lots of Data They Don’t Disclose
Consumers worry about the types of information insurance companies gather with telematics, often mistakenly believing that some of that data might cause their insurance company to raise their rates. Most U.S. insurance companies (in most markets) that offer optional telematics programs track driving habits, but the intention is to offer drivers insights, safety information and discounts for good driving, Tarantino says.
One big caveat: in the spring of 2015, Progressive changed the tone of telematics by introducing the very first surcharges for customers opting into the program and displaying bad driving behaviors. Called Snapshot 3.0, Progressive’s telematics penalty is currently in about 10 states, but the change makes it clear that at least some insurance companies won’t always only offer the carrot-and-stick telematics model of “discounts only.” Before you sign up for a use-based insurance program that uses a telematics device, make sure you understand any risks (like surcharges).
The data that telematics devices could allow insurance companies to monitor is theoretically endless, though most insurers only monitor certain behaviors (for now), and all must disclose exactly what they are looking at with their customers. But Allstate, for instance, has a patent for a steering wheel that monitors the driver’s blood pressure–something that won’t necessarily become a reality, but it does offer insight into where insurers might be headed.
And some insurers are using telematics to become more involved with the entire driving process—even crashes–now. Tarantino says Octo Telematics’ Proactive First Notice of Loss (FNOL), “allows insurance companies to rapidly react to an accident, moments after it has happened, so that contact can be made with the policyholder in a proactive way.” He explains that when insurance companies know about crashes immediately, they can help customers avoid becoming victims of fraud and speed up the claims process.
We know there are certain instances in which not notifying your insurer about a traffic incident works in your favor, and with programs like these, drivers would give up that option.
What’s the Future of Telematics Look Like?
The more cynical among us might end up thinking that insurance companies are escalating to mandatory driver monitoring with both surcharges and discounts, depending on each driver’s stats. And in fact, reports Edmunds.com, J. Robert Hunter, director of insurance for the Consumer Federation of America and Robert P. Hartwig, president of the Insurance Information Institute believe that usage-based insurance will be the norm within about five years and that any driver who opts out will pay more.
So while use-based insurance is voluntary for now, the best thing drivers can do is pay attention to what sorts of behaviors these programs monitor, and practice improving their own driving–and teach new teen drivers to master important behaviors right off the bat.