Car/Auto Insurance: Telematic systems

Car/Auto Insurance: Telematic systems

Conventional rating systems are primarily based on past realized losses and the past record of other drivers with similar characteristics. More recently, telematic systems have been introduced whereby the actual driving performance of a given driver is monitored and communicated directly to the insurance company. The insurance company then assigns the driver to a risk class based on the monitored driving behavior. An individual, therefore, can be put into different risk classes from month to month depending upon how they drive. For example, a driver who drives long distance at high speed in one month might be placed into a high risk class for that month and pay a large premium. If the same driver drives for short distances at low speed the next month, however, then he or she might be placed into a lower risk class and charged a lower premium.

Norwich Union is currently offering a type of telematic auto insurance in the United Kingdom called Pay as You Drive. This system employs a combination global positioning system (GPS) and cell phone in a car to monitor driving performance and communicate risk factors to the insurance company. Drivers are offered a discount if they exhibit safe driving. Trials conducted by Norwich Union in 2005 have found that young drivers (18 to 23 year olds) signing up for telematic auto insurance have had a 20% lower accident rate than average.

In the United States, Progressive Corporation is offering a form of telematic auto insurance to residents of Minnesota called TripSenseTM. The TripSense system consists of a black box that the driver plugs into their car's OBD-II port. The black box monitors the mileage driven, speed, time of day and other parameters, but not the car's location. The user then checks the black box once a month on their home computer. The home computer tells them if they qualify for a discount. If they do, they can download the information to the insurance company and get the discount. If they don't they do not have to download the information.

Other insurance companies are offering telematic auto insurance products in Germany, South Africa, and Japan.

Source: WP