IHS Automotive predicts 142 million people worldwide will have usage-based insurance (UBI) by 2023, compared to 12 million today. In Australia, it is still early days for UBI or pay-as-you-go car insurance. But vehicle owners who use telematics will have more control over their premiums by showing insurers how, where and how often they drive.
Telematics is a communications technology, sometimes called a black box. Usually, the owner purchases a vehicle with telematics already installed or downloads a telematics app on their phone.
A black box can provide insurers with useful, real-time, risk-profiling data. For example, it logs type of braking and acceleration, speeds, location, or time spent behind the wheel. Currently insurers use broader information, such as type of vehicle, postcode, history of driving offences, and age, as proxies for the driver’s risk.
Telematics provides a bird’s eye view of each driver’s real, on-road risk.
Fleet owners use telematics
Fleet owners may see the benefits of using telematics in their vehicles more quickly than private drivers. An RAC (UK) survey of 1,000 businesses found their top five reasons for using it:
- 80% to track staff vehicles
- 54% to monitor drivers in training
- 47% to provide accurate mileage for tax/expenses
- 44% to monitor delivery for customer service purposes
- 37% to track vehicle health.
As a result, businesses surveyed saw reductions of 55% in fuel used, half the number of speeding or traffic fines, and 43% fewer staff accidents.
This small example shows how telematics installed in all vehicles has the potential to improve road safety.
Australia takes the international “safe systems” approach to road safety. Telematics can contribute to each one of these systems:
|System||Role of telematics|
|Road safety management||Traffic alerts, where to put speed zones, crossings etc|
|Safer roads||Knowing where accidents happen, common problems|
|Safer vehicles||Tyre wear, engine diagnostics, braking|
|Better response to crashes||Instant response to an incident, faster claims|
|Safer road users||Incentives to change monitored behaviour|
Safer road users
A study just published in Marketing Science found UBI users became generally safer drivers over 6 months. They tended to drive the same distances but dropped their daily average of hard-braking by 21%. Younger drivers and females improved their UBI scores over that time more than older drivers and males.
At the same time, drivers had more sense of control over how much they would pay in insurance premiums.
The NSW government has just completed a 6-month trial in Western Sydney of young drivers who volunteered to install telematics in their vehicles. Results are not available yet, but it will be interesting to see whether they match those in the study above.
Telematics and insurance
QBE was the first insurer in Australia to offer lower comprehensive insurance premiums for safe driving with Insurance Box. This program used in-car sensors to track and rate speed, braking, and acceleration. While currently suspended, QBE says Insurance Box helped reveal what kind of information customers were willing to provide to get tailored cover.
One of the biggest costs in claims handling is finding out exactly what happened. Telematics can offer an immediate alert to the accident, be an independent and accurate witness, and simplify the claims process straightaway. This could potentially make compulsory third party insurance cheaper.
Taxis, hire cars and rideshare vehicles in NSW are already using telematics to adjust their CTP.
Since 1 April 2018, rideshare drivers pay 10 cents per kilometre or, if the journey started in a country region, 6.6 cents per kilometre on top of their regular premium. Drivers of taxis now pay a lower initial CTP premium than before but, in the first half of 2019, will pay the same rate per kilometre as rideshare.
It seems likely all insurers will move towards UBI or pay-as-you-go insurance as a better way to manage risk and claims. Vehicle owners could value having more control over how much they pay in premiums. If customer privacy suffers in the interim, it may be for a good cause. Most people want better road safety and cheaper premiums, don’t they?