How Data-Rich Telematics Is Accelerating the Future of Auto Insurance

Auto insurance pricing is complex, challenging carriers to deliver competitive rates that effectively balance risk with profit potential.

Fortunately, the evolution of telematics has streamlined the pricing process to introduce more tailored, fair and transparent insurance policies based on how a person drives versus who they are and where they live.

Today, all top 10 U.S. auto insurance carriers offer a telematics solution to their customers.

Most take the traditional approach of providing all customers with the same discount for enrolling in the program, generally between 5% and 10%, regardless of how risky or safe they actually drive. However, through newly advanced telematics solutions, carriers can now reap the benefits of pricing with this data instantly.

This next-generation approach to telematics data benefits consumers who are already sharing their actual driving behaviors in popular mobile apps, like Life360 or GasBuddy. When these consumers shop for insurance, this data is already waiting to help better price them while allowing insurers to finally rate a much larger percentage of their book of business more accurately at time of quote.

Benefits of Telematics-Based Car Insurance

By offering insurers a way to personalize their premiums based on actual driving risk factors vs. proxies for them such as age, gender or credit history, telematics delivers detailed customer insights that improve pricing accuracy and encourage safer driving. Whether at new business or renewal, telematics-based pricing helps improve profitability and increase customer retention rates, especially among the safest drivers, who often benefit from substantial premium discounts.

For consumers, where lower prices are often the No. 1 reason to choose one insurer over another, telematics gives them more control over the price they pay and the related discounts they earn. While providing them with more transparency into the factors contributing to their insurance premiums, when customers remain connected, these programs can help improve their driving behavior and deliver valuable safety benefits such as crash detection.

For example, when Southern Farm Bureau Casualty Insurance Co. (SFBCIC) launched its new program in several states, the rate of distracted driving fell by nearly 10% overall — and almost a quarter of those considered most distracted reduced their distracted driving by more than 50% after 30 days of telematics running in the background on their phones.

Leveraging telematics data to reduce risks on the road works. This is just one carrier’s results of many we’ve seen where making these insights available to their customers can help improve their driving behavior.

Consumers Want to Be Priced on How They Drive

Despite the many incentives for consumers to choose telematics, more widespread adoption remains elusive and stuck in first gear with policies priced this way estimated at just 8% to 10%, prior to 2020. While some may still hear there is low adoption around the industry, it’s likely untrue. When the pandemic hit in early 2020, shopping for new insurance surged and many consumers gravitated to big, well-known brands and offers for lower rates.

Carriers like Allstate Insurance saw just that. According to David MacInnis, vice president of Product Management-Telematics and Usage Based Insurance, consumer desire for telematics-based policies in 2020 was something they’ve never seen before. Consumers want more personalization when it comes to just about everything — what they watch on TV, online shopping — and insurance is no exception. As a result, Allstate has had 100% growth of its telematics programs as new business since March 2020.

An Arity survey of nearly 2,000 U.S. adults confirms this recent interest for telematics programs promising more personalized policies. The survey found that up to 30% of all consumers currently not benefiting from telematics-based insurance policies are highly interested in them, and 69% of those surveyed are at least somewhat interested in participating in a telematics program. In addition, consumers pointed to previous driving records, how many miles they drive and how safely they currently drive as the three most important factors to the price of their insurance.

Increasing Telematics Adoption Rates

For insurers, accessing driving data at point of quote presents a compelling opportunity to increase the total number of policies priced on these more predictive factors. In doing so, insurers can make it easier for customers to leverage their driving behaviors for more transparent and intuitive car insurance, especially for the 38% typically complacent with their current policy.

The moment of opportunity is now. Based on the Arity consumer survey, despite some reluctance among 41% of the population, more consumers than ever before are willing to share their driving data, suggesting a new bilateral approach to telematics could help carriers move the needle on adoption. With greater levels of adoption, carriers can improve their bottom lines, returns on investment, customer retention levels and more.

Incentivizing a policy change is one way to make this change. Instead of blanketed, generic offers, give consumers tailored and personalized offers that help them see how much money they can save, not the amount others have saved or could save in the future.

This represents a decoupling of “discounts” from the insurance transaction, which when the monitoring or promotional period ends, results in churn.

Meanwhile, greater data transparency can help empower customers through a better understanding of the factors that impact their rates. This approach saves carriers from the guesswork of determining whether a driver is low- or high-risk, preventing mispricing on both ends of the spectrum.

According to MacInnis, telematics solutions that enable insurers to customize insurance quotes in real time based on driving data already collected (with consumer opt-in) are already starting to crop up. These applications and services are already used by drivers every day in GasBuddy, Life360 and WeatherBug.

(Editor’s Note: Arity has existing partnerships with all three companies. Arity partnered with Weather Bug in 2019 to provide users of the weather forecasting app with personalized notifications of weather conditions and efficient driving routes based on prior driving behavior. Arity partnered with GasBuddy in 2021 to provide users of the travel and navigation app with personalized notifications that suggest ways to optimize their fuel consumption and save money based on prior driving behavior. Life360, a family driving network, announced a relationship with Allstate and its affiliate Arity in 2018.)

After years of slow and steady progress, access to this most predictive data has caught up with the broadscale opportunity for telematics to substantially change the way insurance policies are bought and sold. In a world more sensitive than ever to traditional factors like credit data, telematics is the key to providing the insights and intelligence insurers need to offer more relevant policies — and, ultimately, safer roads for everyone.

Topics Trends Carriers Auto Data Driven