Advancements in technologies are moving at break-neck speeds. It seems like we are making a breakthrough in computing technology every few months, which is true to some degree. The world is more connected than ever, and we are even improving this connection, making it even more seamless. From the coming of 5G to artificial intelligence is everything; the auto insurance industry is also taking a bite out of these fruitful advancements.
While we are aware that artificial intelligence plays an important part in analyzing insurance claims, calculating risks, and doing a lot in the background; this article will look at the revolutions brought by the recent advancements in vehicle telematics and IoT in the auto insurance industry and how it will affect both the auto insurance companies and the policyholders.
Auto Insurance and Risk
Auto insurance companies can operate and offer these expensive reimbursements because of their efficient and accurate risk management methods. A large number of policyholders pay the company insurance premium while a small percentage of them make an auto insurance claim. This is what allows them to pay for the insurance claims and keep the business profitable.
If you switch this, where a large number of people make insurance claims and only some people pay insurance premiums, the company will go bankrupt (and fail to pay for the claims). It is quite understandable how important risk management is for these companies to operate. They must keep the risk of an insurance claim at the lowest to operate. And these companies are always adapting new technologies to reduce the margin of risk to a minimum.
What is IoT?
IoT stands for Internet of Things, and this is a technology that has become popular only recently. As the name suggests, the Internet of Things is an interconnected network of “things.” The things here include every gadget or device that you use daily. Moreover, the growth and development of this technology have been bolstered with the introduction of 5G telecommunication.
IoT connects all the important devices such as the TV, fridge, thermostat, lights, air conditioner, and your car as well. This interconnectedness between gadgets allows for a far superior data collection and cohesive operational environment. For example, the smart locks of your door can sense you arriving, and then this will alert the AC to switch itself on. IoT is making everything “smart.”
What is Vehicle Telematics
Vehicle telematics is a branch of artificial intelligence and data processing where crucial data from your car’s computer such as speed, average speed, acceleration, braking frequency, distance traveled, location, driving pattern, and other diagnostic information is collected, transmitted, and processed to get a detailed analysis of the car, and the driver’s driving pattern.
You’d be surprised to see how much a computer with a smart processing program can find out about your driving patterns just using your vehicle’s driving data. Vehicle telematics is used by multiple industries, from the automaker’s industry to gather important data about car maintenance and safety to auto insurance companies. So how do auto insurance companies use vehicle telematics and IoT? Let’s find out.
Vehicle Telematics and Internet of Things for Auto Insurance Companies
As already established, auto insurance companies are risk management companies. Their goal is to reduce the risk of insurance claims to a minimum. This increases revenue and reduces loss. How do they ensure that the risks are low?
Auto insurance companies consider multiple factors associated with the individual before deciding the rate of auto insurance for that person. The factors that affect the rate of auto insurance include:
- Driving record
- Part insurance claims
- Credit score
- Age
- Gender
- Location
- Type of car
- Traffic violations
So, if you have a poor driving record, a history of auto insurance claims, or a DUI charge, you’ll have to pay more for the auto insurance policy, despite you have become a more responsible driver. One little mistake, as minor as a speeding ticket, and finding affordable car insurance would be very difficult. But with vehicle telematics and the Internet of Things, this is changing for the better.
Vehicle telematics can provide insurance companies with real-time data on the driving pattern. This, along with powerful A.I-based predictive analysis, provides auto insurance companies with more reliable and detailed data about the possible risks of accidents and insurance claims.
So even if you’ve had a bad driving record or past insurance claims, if the auto insurance company can do a better analysis of the risk associated with you and get real-time data about your driving pattern, they’d be happy to give you affordable rates. A win-win for both.
The Internet of Things, on the other hand, is making collecting data easier and more accessible. There was a time when you’d have to go to the auto insurance company’s offices for them to collect all the data from your car. Then came special devices that connect to the OBD II port of your car. But now, with the coming of IoT, all that feels prehistoric.
Just one application on your smartphone is enough to gather and process everything needed for analysis. Some cars don’t even need an app. These cars come equipped with powerful computers that can connect to the internet and collect, process, and transmit useful data directly to auto insurance companies (with your permission). All this is happening in real-time, all thanks to the Internet of Things.
With each year, not only auto insurance companies will start adopting these technologies even more, but new technologies will be added as well. With more interconnectedness and processing power, computers will be more accurate in calculating risks. Imagine a future where you can see your insurance rates fluctuating just as you see your real-time mileage? That future is not far away.