Page 33 - AAA Magazine – AAA Ohio Auto Club – May 2020

Why Telematics is the Future
of Auto Insurance
How do insurance companies calculate your rates? Historically, agents would look at factors that determine how likely you are to file a claim such
as age, gender, credit score and driving history.
So a 16-year-old male (who is considered “high risk”), would typically pay a higher premium than a 30-year-old woman (who is “low risk”), assuming their driving records are similar.
While this method is a good starting point for risk analysis, it does not paint the full picture. There are many cases where an adult drives more recklessly than a teenager and would be far more likely to file a claim than the young driver. However, they typically pay a lower premium only because of their age. This analysis strategy does not consider driving behavior as part of the equation.
This is where telematics come into play. Telematics (also called usage-based insurance) uses internet and satellite technology to provide real-time data to measure driving behavior. Most commonly, they work with your GPS or navigation systems to collect data and record your driving styles. There are two types of usage-based insurance: Pay-As-You-Drive (PAYD) and Pay-How-You- Drive (PHYD). Some companies will look at your speed, acceleration and breaking (PHYD) while others look at your typical driving distance, time and location (PAYD).
In short, telematics evaluates how you drive and how you use your vehicle.
So if we refer back to the previous example, let’s say the 30-year-old woman brakes hard and typically drives late at night; her insurance premium might be higher than a young driver who eases into his brakes and avoids night-time driving.
Telematics devices can be either embedded or non-embedded in your car. Embedded devices are pre-built into newer cars, while non-embedded devices include mobile driving apps and plug-ins. Over the last several years, many of the top insurance companies have started incorporating telematics when determining premiums, including Progressive’s Snapshot and Nationwide’s SmartRide. The majority of insurance companies opt for usage-based apps that their clients can easily download.
By Courtney Armpriester
So, how does user-based insurance benefit you? The use of telematics can result in:
Lower Premiums. Many insurance companies will automatically provide a small discount just for signing
up for their usage-based program. Depending on your driving habits, you can save even more. According to autoinsurance.org, the average savings with usage-based programs are 20% to 40%.
Safer Driving. You will receive feedback on your driving behavior that can ultimately improve your driving and may reduce the risk of an accident. This is especially useful in providing insights for new teen drivers.
Faster Claims Process. With the use of these devices, companies can quickly identify who is at fault in an accident and verify the exact time and location of the incident.
Telematics is an easy way to save money on your insurance premiums and improve your driving skills. To find out your potential savings and to determine if usage-based insurance is right for you, talk to your AAA insurance agent.
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Courtney Armpriester is Brand Manager for AAA Ohio.