The use of telematics, or collected driving data, for car insurance has been hailed as the unavoidable future of the industry, a perfect win-win for consumers and insurers. The ability to improve underwriting performance by moving from a statistical approach to risk to a personalized one based on actual usage data is an alluring idea. Consumers, though, aren’t that keen to jump on board just yet.
The movement towards telematics Usage Based Insurance is more than a decade old, pioneered by Progressive, which first offered mileage-linked discounts through combined GPS and cellular systems.
Technology has changed rapidly since then and insurance companies can now also track not just the distance driven, but also the speed, the time of day, the frequency of sudden brakes or other elements of safe driving. The result has been the growth of several UBI offerings by insurers, including Pay-As-You-Drive, Pay-How-You-Drive, Pay-As-You-Go, and Distance-Based Insurance.
Insurers and hardware manufacturers are betting hard on telematics. In most states in the U.S, customers have multiple insurers offering telematic UBI car insurance. Earlier this month, Allstate announced it will open a stand-alone unit for a telematics business. In early 2016, LG Electronics and Intel announced a collaboration to develop and pilot 5G-based telematics technology, the next generation of wireless technology for cars.
Insurance companies collect the data from the car either through a customer’s smartphone, a dongle inserted by the driver to the on-board diagnostics port, a professionally-installed black box or from telematic capabilities embedded in certain car models.
Consumers on their part, are joining in lackluster numbers. An August 2016 report by LexisNexis, which owns telematics provider Wunelli, shows only a slight increase in awareness to telematics since 2010. Perceptions of telematics such as “believability”,”relevance”, and “appeal” are practically unchanged, indicating the weak growth of the popularity of such products.
Demand for UBI products is also stagnant, hovering at about 17 percent through the years, according to the LexisNexis report. A July 2014 Towers Watson survey found that 8.5 percent of consumers had a UBI policy in force in the prior 17 months.


Why aren’t consumers hopping on the UBI insurance bandwagon? Some pundits look to better smartphone technology for telematics’ big break, making any additional hardware obsolete. Others say embedded telematics in cars and better cooperation between car manufacturers and insurers will push these types of products over the tipping point.
Currently, the push for telematics is mostly from the supply side. Insurers are probably looking, green with envy at Google and Facebook, asking, “How can we get in on that customer data action?”
Photo credit: Chad McDonald via Visual Hunt / CC BY-ND