If you’re like most people, you probably consider yourself to be a good driver – better than a lot of your fellow travelers. If you could only prove your prowess to your insurer, they’d lower your rate, right?
That’s the whole premise behind telematics programs that allow your insurer to use technology to track your driving habits. Drive well, and some insurance companies promise these programs can save you up to 40% off your rates. They could also improve your driving, thanks to sending tips based on how to drive better based on your telematics data.
But telematics policies also require a level of comfort about the data that’s being collected about your driving, and what might be done with it. With some insurers, too, these programs can backfire on bad drivers, because the telematics results could be used to raise their rates.
What are telematics programs?
Most insurance companies now offer the option – known as telematics or “usage-based insurance” – to capture a digital record of your driving habits to help determine your insurance rate. These behaviors are captured either through a mobile app or a physical device you plug into your car.
The idea is to gather more information on the quality of your driving so the insurer can better match your rates to your actual risk level. Insurance companies take many factors into account when setting your rates, after all: everything from your driving record, age and gender to your marital status and education level. Recording your driving practices just gives them one more body of data to use for this purpose.
Most insurance companies don’t go into great detail about what kind of information they collect and how they use it. In general, though, here are the types of characteristics they’re looking at:
- Phone usage while driving, if any
- How quickly you accelerate, take corners and brake
- Trip details: How often, how far, where and the time of day you drive. (Some companies even allow you to utilize this data for a type of usage-based insurance in which you’re charged according to the number of days and miles you drive, rather than on a flat monthly, semi-annual or annual rate.)
As you might expect, data privacy concerns are among the potential drawbacks to using telematics programs. Some states have even passed laws limiting the type of data insurers can collect, which is likely why telematics programs aren’t always offered in every state. But for many drivers, privacy issues are not enough of a factor to deter them — especially when weighed against the potential savings.
Ways to save with telematics
Telematics programs don’t offer an across-the-board savings for everyone. Instead, how much you can save depends on what your insurance company offers, and how you use the program. Here are the four potential ways in which usage-based insurance can help you save money:
Sign-up discount
Insurance companies generally offer an upfront discount right when you start to use the program. It’s a carrot designed to get you to participate. While the discount can vary from company to company, it’s often around 10%.
When your policy comes up for renewal your rates might change, after your insurer has gathered and analyzed the actual data about your driving.
Driving quality discount
The main discount that telematics programs offer is based on your actual driving habits. It usually takes some time for the insurance company to gather enough data to determine the kind of driver you are. Once they’ve done that, your insurer will let you know what type of discount, if any, you qualify for.
This is where the benefit of using usage-based insurance can sometimes get sticky, and even backfire on bad drivers. While many insurers don’t have this practice, some companies, if telematics data reveals you’re a risk when at the wheel, could respond by raising your rates.
Other cost savings
Some insurance companies offer other types of discounts for using their telematics program, often completely unrelated to insurance. Amica’s StreetSmart app, for example, also rewards good drivers with gift cards at popular retailers like Amazon and Target.
While perks like these might not alone justify switching insurers, they’re still something to consider when deciding whether to use an insurance company’s telematics program.
You might drive better, too
Sometimes it’s the indirect ways to save that end up counting the most.
Telematics programs typically deliver real-time feedback on your driving skills, including tips on how you might drive more safely. According to an Insurance Research Council report, 80% of drivers changed their driving habits while using telematics-based insurance. A third of drivers even kept up those habits after they stopped using the program. Anyone can benefit from custom feedback on how to drive better, but it can be especially helpful for teenagers learning to drive.
The impact of adopting better driving habits is huge, and not just in safety terms. If you’re a safer driver, you’re less likely to have to pay a deductible if you get into a car accident, or for any extra damage that your insurance doesn’t cover. You’re unlikely to see your insurance rates rise after getting a ticket for speeding or DUI, either, since your odds of getting those should have dropped. If that’s indeed the case, you could also qualify for safe driver discounts that many insurance companies offer on top of the savings from their telematics program.
Is telematics right for you?
Telematics programs aren’t right for everyone. If you’re not comfortable handing over information about your real-time driving habits, you might consider sticking with other less-invasive ways to save money on car insurance, like increasing your deductible or dropping certain coverages on an older car.
If you’re not bothered by sharing your driving information, you should at least check with your insurer on a few points before signing up for their telematics program:
- What specific information do they collect?
- Who do they share that information with?
- How do they use that information? Could they use it to raise your rates, for example?
- How much can you save? Is it an upfront discount, or does it continue at each renewal?
- Do they offer custom feedback and tips on adopting better driving habits?
If your insurer can use the information it collects to raise your rates, it’s especially important to be honest in your assessment of your own driving skills. Ask your friends and family if you’re a good driver, and take stock of how you use your car. Do you drive a lot, or a little? Do you frequently drive downtown during rush hour, or do you tend to stay on rural roads at off-peak times?
Remember: insurance companies make big promises in exchange for sharing your information with them. It’s only fair they do the same for you, too.
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