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Vehicle telematics and cheaper insurance

Within a few years we will see widespread adoption by the insurance industry of telematics in vehicles in return for cheaper premiums. At the moment, insurance companies calculate your risk based on your previous history, your age, where you live, where you park your car and so on. But if they know exactly how you drive, how far you drive and where you drive, they will be able to more accurately calculate the risk, and therefore adjust your premium up or down.

This will mean that people who drive low kilometers at moderate speeds will save money, whereas people who accelerate hard and drive more kilometers will have to spend more to get the same level of cover.

Of course, there are serious privacy, data collection and civil liberties issues to overcome, but this technology is already being used in the UK, Australia and here (e.g. by Tower Insurance and a smartphone app, which isn’t exactly telematics, but only one step from it), with novice drivers being targeted first.

What are vehicle telematics?

Vehicle telematics is the measurement of all facets of your vehicle’s activity while you are driving: speed, acceleration, deceleration, g-forces when cornering, how far you drive, how often you drive and more. It might also measure aspects of the vehicle’s roadworthiness such as how frequently it is serviced, what the tyre pressures are.

The measurements are taken by an on-board computer that connects to sensors in the car and also monitors position and speed by GPS or other means. As you drive it gradually builds up a profile to determine your risk; one burst of hard acceleration probably would make no difference, but constant hard acceleration and heavy braking could signify a driver that would take more risks; driving at 50kph in an urban area at 3pm on a Sunday is probably low risk, but driving at 50kph in a school zone on a Wednesday is high risk.

Vehicle telematics can also be used to help predict servicing intervals and calculate fuel economy.

In an accident a vehicle telematics system can automatically dial emergency services, giving a GPS reference and an indication of the severity of that accident. When connected to a screen, they can give driver feedback to encourage safer driving.

Vehicle telematics are available to anyone with a smartphone: any number of apps exist to measure your general performance, although they won’t measure specifics about your vehicle such as tyre pressures or oil levels. On-board computer-based telematics must be installed by a professional.

How does supplying telematics to an insurance company benefit drivers?

There are two main concepts: Pay as you drive (PAYD) and pay how you drive (PHYD).

New drivers and young drivers

New drivers and young drivers are far more likely to crash than experienced drivers therefore insurance companies are targeting this demographic first. When you first start driving after getting your driving licence the insurance company knows very little about you – just the type of vehicle, your age, address, where you park and whether you have an alarm or not.

Infrequent drivers

The more time you are on the road, the more risk you have of having an accident, within your own personal set of circumstances. If you nominate a certain amount of kilometers you will drive per year your insurance could be reduced over the average insurance level.

How will supplying telematics to an insurance company disadvantage drivers?

Telematics doesn’t measure driver skill

Telematics just collects data and assigns an arbitrary value. A person could have 30 years of accident-free history, have completed courses in advanced driving and be driving a vehicle capable of exceeding the speed limit in 5 seconds and cornering g-forces of 1g yet they will be assessed under similar parameters and guidelines as another driver driving an old vehicle without ABS who has had multiple accidents and scrapes.

Telematics increases the overall insurance premium for drivers that can’t afford telematics (or don’t want it)

If all drivers that were slow drivers and could drive within the parameters set by the insurance company chose to have telematics, it would increase the price of insurance for every other client. This would disadvantage drivers who can’t afford telematics (if they are not free to install) or don’t want it because of privacy issues.

Security and privacy issues

Someone has to store the data created by the systems. Can it be housed securely and anonymously? What is the cost of this, and does that cost outweigh the benefits? How is the data transmitted? How much data is transmitted? If it’s stored on the car, how much data is stored? Will insurers use your data to deny a claim? Will insurers have to hand over data to government agencies? If someone steals the vehicle can they access data inside the telematics black box?

As you can see, there are many questions to answer.

Telematics will collide with autonomous vehicle technology

Telematics has a limited time frame in which to operate as autonomous vehicle systems with crash avoidance technology already exist and are trickling down into cheaper vehicles. Within a decade the majority of vehicles will have at least some kind of autonomous mode where the driver may be able to occupy the car hands-free.

Of course, this won’t happen for motorbikes, so motorbike insurance premiums will likely remain high.

In the case of autonomous vehicles, insurance premiums should already be dramatically reduced as the risk of at-fault accidents will be reduced just to those that are caused by mechanical failure (sometimes even this is predictable and easy to overcome), or where the driver takes over (something which can also be assisted in the background). Theft will be minimised because all cars will be fitted with GPS tracking and advanced security systems.

While we won’t get to a zero road toll any time soon, autonomous cars will reduce it.

Eventually our cars will have a suit of apps that includes all our connectivity and safety needs built in – it’s almost here.

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Darren is a member of the Institute of Advanced Motorists and the NZ Motoring Writers' Guild

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