What is telematics? It sounds vaguely like something sold late at night on cable shopping networks, but in reality, telematics is far more interesting and potentially revolutionary.
Telematics refers to wireless communication between our vehicles and other systems. These could be monitoring systems relaying information to a database, or controlling interactions between vehicles. Telematics has already been in use for some time through usage-based insurance programs (UIBs), assistance programs like OnStar, and collision-avoidance systems in higher-end vehicles.
In all cases, your vehicle is communicating wirelessly – with the insurance company to collect driving data that determines (or confirms) your rates, with an operator at an assistance site, or with another car to detect and prevent potential collisions and traffic concerns.
The implications for insurance companies are enormous and they are scrambling to stay ahead. Consider the following areas for potential improvement.
- Rates – With more performance-based information on your driving habits available to the insurance company, your rates can be set more accurately. Braking and acceleration habits, speeding, mileage, type of road and highway conditions… all of these factors can be potentially fed into a database to assess your real risk factors.
Theoretically, telematics and analysis could become so advanced that everyone’s rate is customized once a driving history is established. That is good news – assuming you are a careful driver.
- Risk/Accident Prevention – Surely, more advanced monitoring of driving habits will lead to safer driving in general, and communications between vehicles should reduce accidents almost by definition. According to the National Highway Traffic Safety Administration (NHTSA), these systems could potentially prevent over 500,000 crashes annually.
- Fraud Prevention – Fraudulent accident claims will be difficult to make with increased data to corroborate or disprove accounts of the accident.
- Claims/Customer Service – Claims should be easier to process with telematics providing instant information on the situation. Telematics also should help to establish fault and estimate damage more quickly, resulting in lower costs for insurance companies and better rates for consumers.
However, telematics is not a panacea. Merely having the ability to acquire plenty of real-time data does not produce results. The real point is how well insurance companies store, process and analyze this information and act upon their conclusions.
Downsides can be roughly categorized into the concerns below.
- Privacy/Security –You do not have to be a strict Libertarian to see the potential for abuse. How much and what type of information is necessary to assess risk, and how is the information used, stored, and secured?
Hacking has potential to not only destroy, distort, or extract information from the insurance database, but also to manipulate active systems. For example, what happens if the vehicle-to-vehicle collision prevention systems are breached?
- Standards – There are standards within the field of telematics, such as the WAVE standard (Wireless Access in Vehicular Environment) for wireless communications established by the Institute of Electrical and Electronic Engineers (IEEE). However, there are still gaps in standards with respect to data processing formats and other device or system-related issues.
- Data Overload –With millions of cars sending data at rates up to every second, how will insurance companies avoid data overload and pick up meaningful data? How long will they try to keep data? Insurers must handle this huge influx of data efficiently and accurately.
Telematics may seem like a great advance to some and a scary intrusion on privacy to others. Like most technological advances, there are many potential positives, both financial and societal, that generally outweigh the risks.
Get used to telematics and embrace the concept, because it is likely here to stay.