Why Telematics Is a Major Disruptor in Insurance?

The vehicle telematics system and User-Based Insurance (UBI) are key trends in the auto insurance industry and expect a disruptive change in the near future.

Digital technology is transforming the insurance marketplace enormously and the insurers are investing significant attention to meet the customer expectations by adopting vehicle telematics system. The customer vehicle integrated with the telematics system helps to calculate insurance premiums which is dependent on the distance covered by the vehicle, the speed the driver maintains while driving, and also the overall driving habits of customers as this information can be read and stored by the telematics app and made accessible to not only the insurers but also all stakeholders.

Vehicle telematics is recalibrating the auto insurance industry expectations and opening new ways to reach out to the clients. The rise of vehicle telematics not only changing the policyholders’ demands, but also disrupting the way it should be supplied. Many insurers are offering more personalized insurance policies to each and every individual.

Telematics as a major disruptor

The digitization process that telematics has brought in recently has made the total insurance industry to stand up and take notice and eventually catch-up with this change. Recent research studies have revealed that vehicle telematics is playing a prominent role to disrupt the auto insurance industry for positive business outcomes. In this way, Big Data is playing a vital role in helping insurers to solve various challenges such as data mining, handling, warehouse data, building data path for user applications and among many others by adopting extensive and varied data structure, which are made easily accessible to vehicle telematics system with the influence of cloud computing. The access control of the vehicle, real-time updates of traffic congestion and weather forecasts and many other vehicle telematics options are remotely accessed with the help of cloud computing, for both customers and insurers. The big data and cloud computing technologies are the mainstream of vehicle telematics system and hence are attracting new customers towards insurance policies by providing convenience and comfort in service.

Over the years, the auto insurance companies have successfully reduced the gap between insurers and customers. The vehicle telematics-enabled usage-based insurance is gaining momentum to meet the customer satisfaction with a flexible pricing model over the traditional pricing model and as a result policyholders can pay the insurance rates based on their driving behavior. It is an ultimate transformation that is giving customers complete control over their insurance premiums. To help policyholders for their driving risks, User-Based Insurance (UBI) model encourages individuals to drive safe and lower the risk of accidents happening through live feedback even as they can save money by improving their driving skills.

In the US, Insurance companies are implementing different approaches in User-Based Insurance model and the simplest, auto insurance policies are trending in the auto insurance market, such as Pay As You Drive (PAYD) is one among them. Rather than paying a fixed annual premium charge, PAYD ensures premiums are calculated based on the number of miles/kilometers driven by the policyholder with the help of vehicle telematics system.

United States is considering the UBI model as their grid. The spate of recent successes has confirmed immense response of policyholders towards this new approach. Even in many European countries, insurers moved to the next level of Pay-How-You-Drive (PHYD) right after the huge success of Pay-As-You-Drive (PAYD) model.

The Pay How You Drive (PHYD) monitors the driver behavior and driving style, the premium charges are reduced accordingly with improvements in driver behavior.The UBI has a great potential gateway to digitally enhance customers, as a result, PHYD has created a remarkable platform for auto insurance policies, but a number of insurers have started looking beyond the Pay How You Drive (PHYD)model for better user experience, as a development Manage How You Drive (MHYD) considered as the next move of UBI. Manage How You Drive (MHYD) offers a discount to safe drivers and also intimates the policyholders about driving performance through monthly feedback depending on their driving score.

Vehicle telematics benefits:

• Experienced drivers often pay unreasonably high premium charges which can be reduced easily.
• Encourages policyholders to drive safely and reduce the risk of accidents.
• If the policyholder drives very often then he/she will get fewer premium charges.
• Continuous monitoring of the driver helps to improve the driving behavior.
• It’s very easy to track vehicle health and fuel consumption of the vehicle.

The vehicle telematics system and User-Based Insurance system is imparting a major disruptive change in the auto insurance industry with innovative insurance policy models for customer convenience. However, insurers are implementing different strategies to improve the marketing and sales process of UBI model to maintain the balance in insurance policies, perhaps the priority is also given to the risk management and price calculation from the customers’ stand point. The disruptive vehicle telematics system can trigger the process of auto insurance policies and can be sustained without any major change in the insurance company structure, business model, and strategy. The vehicle telematics system is known for its conservative posture and disruption is never really easy for such systems, especially in the auto insurance industry. But the year 2016 can be a year of continuing transformation of vehicle telematics system, in which the insurance companies who remain as innovators will be those who are willing to engage in significant rethinking.

Insurance Jargon Explained and Decoded

Accidents happen. It is just a fact of life. Safety is the best prevention, but sometimes the inevitable cannot be avoided. Having insurance is a worthwhile investment for protecting you and your loved ones. However, getting insurance of any kind can involve a lot of jargon that is not always easy to grasp. Before taking the leap into monthly payments, educate yourself so that you get a plan that works best for you. An insurance agent can help fill in the gaps, but below is a group of terms to become familiar with. Even if you already have a plan, this guide can help you better understand the terminology.

General Terms

A premium is the amount of money that must be paid to the insurer who provides coverage. This fee is usually due on a monthly basis. To achieve a lower premium, shop around for the best possible quote and try to maintain a good credit record. The deductible is the portion of money that you, the policyholder, must pay in the case of an accident. The insurer is then responsible for covering the remainder of costs. Generally, higher deductibles result in lower premiums. If you decide to go this route, make sure that you have enough money set aside to cover your higher deductible. A claim is a request made by the policyholder if an accident occurs. This request is for costs to be covered by the insurer. The adjuster is the person who analyzes a claim and provides recommendations for a settlement based on the damage and policy. Preferred Risk is the term for when an applicant shows lower risk for accident or injury than the average person. These applicants tend to be eligible for rate discounts.

Auto

Accident forgiveness is an option provided by some companies to protect drivers. This option prevents the driver’s premium from increasing after their first at-fault accident. It is especially helpful when the company extends this forgiveness to others on the policy, such as teen drivers. Other potential discounts to look into include low annual mileage on your vehicle, having no accidents in three years, and having multiple cars on the same plan.

Health

There are several different ways of getting health coverage. Group Health is when an employer provides health insurance plan options for its employees and their dependents. The policies are normally at a reasonable or discounted rate. Many people take advantage of this opportunity because it is convenient and secure. Health Maintenance Organization (HMO) is when the insured person pays a fixed membership fee ahead of time. In return, they receive comprehensive health care from a list of approved providers in a certain area. HMOs are usually more affordable, but they do not provide as much coverage. Preferred Provider Organization (PPO) is a health plan that lists preferred health care providers. When patients visit the preferred providers, they may receive incentives such as a lower copay. Copay is a flat rate that the patient must pay each time they receive services from their healthcare provider. Another way to lower copayment is through a cost sharing reduction subsidy that lowers out-of-pockets expenses.

Hopefully, this guide has helped to clarify some of the terms that can be found in the fine print of policies. Although insurance can be expensive, there are options available to help lower premium rates. For example, if you are a college student who gets good grades, you may be eligible for a good student discount on your auto policy.