How This New-ish Field is Affecting Rates and Even Insurability
You may or may not have heard the word telematics yet, but as an insurance agent, you’re certainly familiar with the concept. You know how insurance companies like to track drivers in order to get a handle on their driving habits? That’s a practical application of telematics.
In short, telematics is a field that uses engineering, telecommunications and computer science to gather, transmit and analyze information. This information can then be used in various ways, including to track or control the movement of devices or vehicles or to monitor the status of equipment or items in transit. Real-life examples of the use of telematics include allowing a carshare user to track how soon their driver will arrive on a smartphone or providing a trucking company with a warning when a truck’s refrigeration system fails, making it possible to salvage perishable items before they spoil.
Currently in the insurance industry, telematics is most frequently used to form a picture of individual drivers that may belie broader categories like age and gender. For example, young males traditionally pay a lot for car insurance, much more than their middle-aged mothers. But what if mom has a lead foot and weaves in and out of traffic, while her 19-year-old son always takes it easy and follows the speed limit? Using telematics, their insurance rates can be customized based on their behavior instead of their demographics.
There are other ways telematics could be more broadly used that have implications for auto insurance. Every year, we see horrible images on the news of traumatic mass-casualty traffic accidents involving fog, ice or a combination of the two. Imagine if all cars were equipped with weather and crash sensors that communicated with each other, automatically slowing vehicles down before they could wreck.
That sounds like a great idea. From a human perspective, avoiding injury and loss of life is a wonderful thing. Economically, insurance companies would be thrilled to avoid payouts. But critics point to the flip side—do we really want a device that tracks our every movement? Should telematics be used to deny coverage if an insurance company doesn’t like what it finds out about a consumer’s habits? Who gets access to the information about us? How could it be used in ways that we haven’t even considered yet?
While ethical questions like these are still being sorted out, it seems fairly certain that telematics are likely to play a larger role in the insurance industry going forward and for more than just vehicle coverage.
Thinking about homeowners coverage, some policies now offer discounts for policyholders who agree to have leak detectors with water shut-off capabilities installed. Take this concept further and imagine what could be next. Perhaps soon we’ll all have walkways leading to our homes that automatically heat up when ice forms, preventing common slip-and-fall accidents. Or maybe all of the connected devices in our homes will be equipped with sensors that call the fire department at the first sign of smoke.
Telematics can also apply to other lines such as life insurance. The data provided by a body-worn fitness tracker has the potential to create a much more detailed picture of a client’s current health than a review of their past medical history. Tracking someone’s movements and activity could also tell an insurer personal data such as how much sleep a person is getting or whether they’re sitting in a bar every night.
As with most technologies, telematics can used in positive and negative ways. Some consumers will grasp this and retain a healthy skepticism. Others may be lured to assent to intrusive data collection by the prospect of saving money. An important service you can provide as an insurance agent is to be able to clearly explain both the pros and cons of insurance choices involving telematics so that your clients can make informed decisions that are right for them.
You can expect to hear more about telematics going forward. This growing field is sure to have an impact on how your customers are rated, what premiums they’ll pay and even if they’ll be insurable in the future.
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