With the continual rise of distracted driving and the increase of related accidents, business auto insurers have been feeling the increased pressure on their loss reports. While some have increased their rates significantly, most insurance companies have either stopped insuring auto entirely or significantly limited their commercial auto insurance operations. Could telematics or usage-based insurance (UBI) prove to be an effective solution to the deteriorating auto insurance market?
Traditional Auto Insurance
For as long as we can remember, business auto insurance pricing has revolved around a couple of common factors. While there are always exceptions, most of the time, traditional insurance rates have revolved around loss history, business operations, type of vehicles insured, operation radius, and the motor vehicle records of all drivers. If a business wanted to lower their auto insurance premium, they would have to improve one or all of those aspects of their application.
Usage Based Insurance
With the increasing use of technology in phones and vehicles, insurers have found alternative ways to gather data about the actual risk associated with a business. One of the methods is called "telematics" or commonly called "Usage-Based Insurance." This method doesn't rely on profiling companies like the traditional auto insurance carriers; it tracks drivers and gives them a driving score, which then translates into premium increases or savings.
The mechanics can be a little different depending on the fleet size and type of operation, but the method remains the same. Usually, at the onset of the insurance policy, the insurance company will send you a box of GPS-based devices which you will then install onto your vehicle. This GPS device tracks everything from miles driven, acceleration, cornering speed, braking, and more. The data these devices generate will get shared with both the business and the insurance carrier. The insurance carrier will then use that data to give them a discount or increase the premium during the policy term.
Right now, very few insurance carriers are offering a true usage-based insurance product, but many are offering discounts if driving scores are exceptional. The insurance companies can also use the data to suggest risk management solutions and bring attention to drivers that are problematic (and also increase the premium for those specific drivers). We do not know if this will be the future of auto insurance, but we do predict the practice will become more mainstream.