Why telematics are potentially the next big thing for auto insurance

Published: December 29, 2016

Updated: July 24, 2018

Author: Luke Jones



Telematics devices have enjoyed an upwards arc trajectory and are becoming increasingly popular in the auto insurance industry. This technology allows insurers to give customers usage-based insurance (UBI) coverage. Telematics monitor driving habits and vehicle use, meaning customers only pay for what they use and get discounts for good driving practices.

While growing throughout the industry, telematics and UBI are still relatively new and in Canada are only now starting to be adopted. 2017 will see this technology grow rapidly and the potential benefits of telematics are myriad.

Affordable premiums for customers

Early evidence has shown that drivers using telematics devices are more likely to obey road laws and drive safely. This stands to reason, if good driving habits are observed, the customer is likely to be given a discount on their premium. Insurance company hate risk and love security. If they know a driver is less likely to be involve in a collision, they will offer discounts. Telematics allow companies to monitor driving behavior and develop policies accordingly.

UBI coverage means customers will only be charged insurance when they use their vehicle. This opens a door to a more dynamic auto insurance market. For example, a policy will change depending on when a vehicle is used. For example, basic coverage could be in place when the vehicle is stored before more comprehensive coverage is implemented when the vehicle is in use.

This means companies can tailor policies and make them more affordable, as opposed to users paying a flat rate across the board.

Customers will become more aware of telematics and UBI

While already developed in countries like the UK and Italy, insurance companies in Canada have only recently started to explore UBI and telematics. In 2017, companies will start to focus on introducing new coverage models based on the use of telematics. Marketing campaigns are going to be put in place and customers will become more aware of this technology.

Auto insurance will come with more choice.

Perfect for young drivers

Aside from high risk drivers with some kind of infraction on their policy, young drivers are the most heavily charged policyholders. Many new drivers aged between 17-25 are simply priced out of the market and the best they can hope for is joining a policy of a parent.

Insurance companies fear young drivers because they are more likely to be involved in a collision. Because of this added risk, premiums for drivers aged 17-25 can be huge. Telematics and UBI coverage can help to change perceptions and give young drivers more affordable premiums.

Only paying for what they use will bring overall premiums down. Also, a young driver willing to adopt a telematics device shows the insurer they are dedicated to driving safely. Insurance companies offer discounts to drivers who use such technology, even if they are young.

Safer roads and better drivers

As telematics grow to become a major part of the auto insurance market, it is logical to think the technology will help reduce accidents and make roads safer. To get discounts using telematics, drivers must drive safely. Almost all major collisions that result in injury or death are cause by driver error or driving unsafely. Whether this is speeding, distracted driving, or impaired driving, telematics will help to reduce these crimes.