Driving

What is telematics and how does it affect your insurance costs?

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In an effort to be more competitive and approachable, insurance companies are introducing different options for pricing insurance.

You’ll see discounts for things like being a student driver or bundling with your home insurance. And in a more recent development, there's an increase in telematics programs for auto insurance.

The Zebra recently surveyed 1,000 U.S. drivers on this subject and discovered not everyone is familiar with telematics or usage-based insurance. In fact, 40% of drivers said they didn't know what telematics is. 

Are you one of them? Or do you know what telematics is but are interested in learning more? Either way, read on to learn about this relatively new form of insurance and how it could impact your monthly premiums.

What is telematics?

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Telematics is a form of insurance policy where insurance companies monitor your driving habits and behaviors. They do this via GPS technology and onboard diagnostics (OBD) devices in your car or on your cell phone. They usually focus on the following metrics: your vehicle’s speed, mileage, driving time, driving frequency and several other factors.

Insurance companies consider all of these behaviors to determine the policyholder’s insurance premiums. Often, there’s also a fixed base rate involved, which might consider some other factors, such as your age and location.

In short, if you’re a safe driver or one who doesn’t take to the road very often, you’ll theoretically pay less money than someone who’s more reckless behind the wheel or who drives more frequently. 

These days most major companies have some type of telematics program, though the features vary slightly from company to company. And there are several newer insurance companies that focus specifically on usage-based insurance. 

How telematics works for car insurance

If you’re interested in trying telematics, you can ask your current insurance company about their offering. Some companies require you to be an existing customer or make you take an initial driving test, while others have additional restrictions.

Once you’re onboard, your insurance company will either send you a device to plug into your vehicle or ask you to download its app. It’ll use the GPS and OBD features of your phone and car to track how you drive. It can look at your speed, how far you drive, how long you drive, when you drive, if you’re slamming on the brakes and other driving habits.

For example, Allstate Drivewise tracks your driving through your phone and offers rewards based on completing challenges, like avoiding hard braking or going over a certain speed for multiple days in a row. And Progressive Snapshot offers both an app and a plug-in device that fits into your OBD-II port, which is usually located under your steering wheel. As an additional safety feature, the device beeps whenever you have a hard brake.

Your company will then adjust your insurance premiums based on those driving habits. In some cases, it will measure your driving for a certain amount of time and then lock your pricing into a set period (like three or six months), then adjust afterwards based on how you drive over that period of time. Other companies will update pricing month-to-month. In that case, if, for example, you were to go on vacation for two weeks and didn't drive that entire time, your bill for the next month would be lower than if you were driving every day.

Most insurance companies have a corresponding app for their telematics programs. Users can keep track of their driving habits and adjust accordingly. For example, if you see you tend to slam on the brakes regularly, it could be a sign you’re driving a bit too quickly.

Benefits of Telematics

Telematics and usage-based insurance offer several benefits to drivers, including:

The potential for cheaper rates

Good drivers are more likely to receive cheaper rates with usage-based insurance. If you’re consistently safe behind the wheel, you can see your rates go down, sometimes significantly.

More awareness about your driving habits

If you regularly commute to the same location — say, an office or a friend’s house — your brain may go on autopilot since you’re familiar with the route. As a result, you may speed a bit more or brake more frequently because you’re so used to the road.

Since your telematics app provides updates on your driving habits, you’ll become more aware about your tendencies. Knowing you tend to speed on a certain stretch of road could help with your long-term safety.

A fairer approach

Most traditional insurance premiums also consider non-driving factors, such as your age, gender, credit score, and location. While telematics can also incorporate those factors, it mostly uses driving-related data to determine how much you’ll pay, which eliminates some of the unfairness of traditional plans.

A positive environmental impact

Because part of your premium comes from how regularly you drive, you may decide to forgo using your vehicle sometimes. Perhaps you’ll walk to a nearby destination or bike to work once a week.

Those decisions to drive less frequently add up to a better impact on the environment since, a reduced chance of getting into a car accident, and a longer life for your vehicle.

Challenges with telematics

Though telematics does offer plenty of benefits, there are a few roadblocks to watch out for. Keep these challenges in mind if you’re considering a telematics program.

Longer commutes may raise your premium

Do you have a regular long commute? Maybe you make a lengthy drive to the office or stop by a partner’s apartment or house several times a week.

Since telematics is usage-based insurance, you could find your monthly costs increasing as you drive more regularly.

Unusual driving schedules 

Most telematics options keep track of how often and far you drive, but they also consider when you drive. Since more accidents occur at night, you could find yourself with a higher premium if you’re spending the majority of your time on the road during the evening or in early morning hours. 

The roads you take

Some roads are trickier to navigate than others. Steep hills or sharp curves will likely require more braking, especially if you’re driving when visibility is limited.

Your premiums may increase if those tricky roads lead to speeding and slamming on brakes. If it’s possible to take more populated and well-lit roads, those could add up to savings in the long run.

Is telematics right for me?

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While there’s no solid answer for every single person, you can make an informed decision about participating in a telematics program. Most insurance companies offer their programs for free, including using the app or an in-vehicle tracking device. And some of them allow you to do a “trial run” to see what your premiums could be before committing to anything.

On average, drivers in Delaware can save up to $157 per year with telematics, the most of any state. But your experience (and location) will likely differ.

Think about your driving habits. Do they remain fairly consistent day to day? What’s your commute to work like? When are you typically on the road? Do you take a lot of long road trips on the weekend? Do you often drive alone or with other passengers who could be a distraction?

Figuring out the answers to these questions will help you determine whether to give a telematics program a shot. You very well could save on your monthly premium by being a safe driver that isn’t spending a ton of time behind the wheel. And it’s nice to spend your money on insurance that primarily considers how you drive, instead of factors you can’t control like your age or gender, or things that might take a while to improve, like your credit score.

You may realize you’re still spending more than you’d like on car insurance, even after switching to a telematics program. In that case, it could be worth moving to a new company altogether. And it’s always smart to revisit your car insurance every six months. Has it been longer than that since you checked out potential rates? Type in your zip code below and see if you can be saving more.

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Joey Held
Joey Held

As a writer, Joey Held has specialized in business, marketing, sports, music and insurance topics for more than a decade. He's also a podcaster and author of Kind, But Kind of Weird: Short Stories on Life's Relationships. His first car was a Buick Regal with an inconsistent radio but pretty good gas mileage.