Imagine a world where driving habits, not just location and claims history, determine your business’s insurance premiums. The evolution of telematics in insurance is reshaping the industry, offering a glimpse into this future where data helps drive your rates. While telematics has been used for decades with trucking, is there a solution for smaller-sized risks? The short answer: yes. But first let’s explore the development of the technology, traditional rating elements, and why telematics may be a viable solution for your clients and business.
Telematics, for the sake of this application, is a method used to collect and store information related to driving habits. This technology relies heavily on Global Positioning System (GPS) and is not entirely new to the insurance industry. In 2004 Qualcomm announced an innovation that combined the use of GPS signals and cellular signals to determine positioning with much greater accuracy. Around this time telematics took off. According to the GPS Alliance, the revenue generated from GPS sales jumped 55% between 2005 and 2010 while the price per device dropped 56% for commercial vehicles. In that time, we also saw the invention of the “modern day smart phone.” The first iPhone was released in 2007. With this evolution of both software and hardware, telematics can now be used by not only commercial-sized fleets but also smaller, mom-and-pop sized risks.
Traditionally, insureds have been rated using several elements, including location, nature of business, exposure quantification, and claims history. Telematics has been used as an additional element for decades for enterprise fleet management in insurance. However, there are several factors that have prevented smaller-sized risks from utilizing the technology. In the early 2000s, telematics system hardware cost upwards of $2,500 per unit, making cost the most significant barrier to usage. Today, a smartphone and an app or service are the only necessary elements for usage of a telematics system. While these services range in price, they can also be included with some insurance providers, making the cost minimal to insureds.
Telematics is valuable specifically to the insured looking to be proactive in their risk management strategy. Utilization of the technology will allow you to monitor, control, and mitigate your risk factors by extrapolating actionable insights. You can capture data, process data, and deliver insights from that information to make improvements. There are also advantages to using telematics for all parties involved.
Starting out, telematics is a win for the insured because there’s now a data-supported solution at similar pricing and terms to what they already have in place. The usage of the technology evolves into a win-win for everyone because carriers are able to collect data allowing them to better predict where accidents are going to happen, track the number of miles driven, and identify harmful driving habits. Additionally, telematics is already a requirement for access to certain carriers and will most likely become more commonplace as the technology and industry continue to evolve, especially as telematics usage becomes more common for companies of all sizes.
Telematics and how it’s used is evolving, and the full effect it will have on the insurance industry is yet to be seen. The technology has quickly branched out beyond trucking to include both food delivery services and trades contractors. With ease of access and use, the industries utilizing telematics will only continue to grow.
Timothy M. Pedersen, Jr., is a Principal, Senior Vice President, and the Transportation Practice Group Leader at Brown & Riding. With over 20 years of industry experience, Tim has been instrumental in establishing B&R as a national presence in the transportation space.
Tim’s team was recognized in 2020 as Wholesale Brokerage Team of the Year by Business Insurance. Tim was also recognized in 2019 as a Top Specialist Broker by Insurance Business America. He has been President of Insurance Associates, a Committee Member of the Young Agents (a division of the Independent Insurance Agents of Illinois), currently resides as Director of the Association of Lloyd’s Brokers (ALB), and is a committee member for WSIA (formerly NAPSLO).