In the realm of auto insurance, telematics has long been a driving force to minimize risks through the promotion of better driving habits. While it has proven itself for decades within the trucking industry, Brown & Riding principal, SVP, and transportation practice group leader Timothy M Pedersen, Jr (pictured above) says that it can offer so much more, especially in the realm of smaller-sized risks.
“Imagine a world where driving habits, not just location and claims history, determine your business’s insurance premiums,” Pedersen says. “The evolution of telematics in insurance is reshaping the industry, offering a glimpse into this future where data helps drive your rates.”
Telematics technology, which collects and stores data on driving habits through GPS, has evolved significantly since its early days. Pedersen recounts a notable milestone that came in 2004, which was when Qualcomm enhanced the accuracy of positioning by integrating GPS and cellular signals.
“Around this time telematics took off,” he said. “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.”
The mid-2000s also served as ground zero for another notable technology.
“In that time, we also saw the invention of the modern-day smartphone,” Pedersen explained. “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, insurance premiums have been calculated based on a range of factors such as location, business type, exposure, and claims history. Pedersen believes that the advent of affordable telematics technology has offered a new dimension for determining insurance rates by focusing on actual driving behaviors.
“In the early 2000s, telematics system hardware cost upwards of $2,500 per unit, making cost the most significant barrier to usage,” he recounted. “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.”
Pedersen pointed out that telematics offers numerous benefits for “proactive” risk management. By gathering, processing, and analyzing driving data, businesses can gain valuable insights into risk factors, enabling them to implement strategies to mitigate these risks effectively.
“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,” Pedersen said.
Pedersen said that the use of telematics has since evolved into a mutually beneficial tool for both insurers and insureds. It represents a shift towards data-driven insurance policies, where premiums are more closely aligned with the insured's actual driving habits rather than static factors.
“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,” he said. “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.”
Pedersen also underscored the ongoing evolution of telematics in insurance, emphasizing its role in promoting safer driving practices and its growing accessibility for businesses 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,” he said. “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.”
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