Americans have grown used to auto insurance as a simple contract. Premiums stay the same throughout the policy term, usually six or 12 months.
But that long-standing rhythm is changing in favor of more data-driven pricing and ongoing connectivity. Insurance could soon feel less like a predictable product and more like a monthly bill, like utilities or other variably priced services.
Drivers can already opt in to this kind of arrangement with telematics. Drivers trade price consistency for savings. For insurers, it could mean the end of the decades-long tradition of using actuarial tables to calculate premiums.
Insurance that prices you in real time
Actuarial tables set premiums based on factors such as driving record, credit history, age, gender, location, and vehicle type. Once a driver buys a traditional auto insurance policy, the insurer can’t legally change the premium until the policy comes up for renewal.
But with newer technologies, such as telematics, connected-car data, and AI-powered analytics, insurers can now continuously assess your risk and adjust pricing accordingly.
“It’s not necessarily a new concept,” said Kelly Hernandez, associate vice president of auto product development and telematics at Nationwide Insurance. “But it’s a new concept for auto insurance.”
Insurers began introducing telematics programs as convenient safety- and driver-feedback systems, frequently linked to smartphones. Now, to an increasingly greater extent, telematics programs set policy prices that may frequently go up or down, depending on the data.
Telematics tracks everything in real time — including a car’s speed and mileage, a driver’s braking habits, when they drive, and even how often they use their cell phone while driving. The technology feeds that data back to the driver’s insurance company. The insurer then uses the data to refine the risk profile and potentially raise or lower the customer’s premium.
In other words, instead of a fixed snapshot of risk at the start of a policy period, insurers can shift the policy in response to driver behavior.
“Like a utility bill that varies by usage — in the summer it’s higher and lower in the winter — people are familiar with the concept,” Hernandez said.
Large insurers, like Nationwide, and telematics providers already offer these programs:
Usage-based insurance (UBI), such as pay-per-mile and other behavior-based rates, is becoming increasingly common, and some drivers can save money by enrolling. Nationwide, in fact, told Insurify that 85%–90% of its customers who buy a policy online enroll only in its UBI program, and acceptance rates are still growing. Their average savings amount is 30%–35%, according to Nationwide.
Some insurers offer discount programs that assess rates based on six-month or annual reviews.
Advanced analytics firms — including insurers themselves — now embed telematics into standard pricing models to tailor premiums more closely to individual risk profiles.
“It has every potential to transform the way in which risk is assessed and in which rates are administered to the consumer,” said Kyle Schmitt, vice president of quantitative science at Root Insurance. “It is the most decisive bit of information that you can get in predicting the risk of a customer and is among the factors that have the biggest implications on the rate that you will get as a consumer.”
Root was one of the pioneers of telematics-first pricing, collecting driving data via smartphone to set and adjust premiums based on real driving behavior, not just rating factors. While it’s less explicitly pay-per-mile, driving performance data can influence rates more dynamically than with traditional pricing.
“It has the potential to displace information that insurers historically have gotten from other places,” Schmitt said. “Because the thing we really care about is your behaviors behind the wheel, but historically, insurers have had to rely on proxies that are not causal in nature; they are not the things that actually cause the accidents.”
Connected cars = connected insurance
Part of this shift stems from the fact that modern cars increasingly ship with built-in connectivity. And this technology can deliver continuous driving data streams to insurers, eliminating the need for plug-in devices or phone apps.
This evolution has broad implications:
Insurers can underwrite policies at a much more granular level.
Insurers can charge multiple drivers using the same vehicle differently.
Policies can follow a vehicle instead of a driver.
Industry experts point out that it’s the same logic behind usage-based models in other industries, such as utilities. Pricing and service become real-time and personalized rather than static and fixed.
Honda recently launched its own insurance offering, emphasizing consumer privacy and choice. Unlike many competitors, the company says it won’t use driving data to price its policies, explicitly acknowledging consumer concern about continuous data sharing.
Some states, including California, have forbidden insurers from raising rates based on telematics data, requiring them to offer only discounts through the service.
“It’s tough in those particular markets where there are discount-only stipulations,” Schmitt said. “There’s consumers on the road who are less risky and consumers on the road who are more risky. So, those markets can be more challenging. We work with regulators in all of the markets where we are active to make sure that we are complying with their rules and building a telematics program that benefits the customer in large part, but also is economically sustainable.”
Consumer control is the trade-off
For consumers, the shift away from traditional actuarial tables to telematics data has real consequences.
On one side, safe drivers may pay lower premiums than those with traditional risk profiles if their real-time behavior indicates lower risk. And connectivity can enable more personalized products, including pay-per-mile or on/off coverage.
But rates can change throughout the year, not just at renewal. There’s often less transparency about how data is collected, used, and shared. And some drivers may be penalized for occasional risky behavior they weren’t aware their insurer was tracking, such as distracted driving.
Advancements in technology are also ushering in profound changes in the relationship between insurers and their customers. Before, a customer typically interacted with their insurer only when they filed a claim or when their policy came up for renewal. With the advent of telematics, customers, through their vehicles, are in near-constant communication with their insurance companies, which are reviewing driver behavior, noting mileage patterns, and improving safety.
“The telematics space is still evolving, and nobody’s figured it all out,” said Nationwide’s Hernandez. “But it is creating new experiences and ways to engage with our customers. Prior to telematics, we hadn’t really had the opportunity to connect with our customers beyond the transactional periods. Now we connect more frequently with our customers and create collaborative experiences. We’re becoming more of a partner with our customers.”
What’s next? Know before you enroll
As consumers sign up for policies in this new market, experts recommend that they educate themselves about the data the insurer collects. Drivers should find out who owns it and whether they can opt out of data collection.
Telematics pricing may also encourage more frequent shopping for coverage: If pricing moves to a dynamic model, better deals and prices could be more readily available.
Finally, experts say, monitor your driving behavior, but don’t let fear dictate decisions.
Commented
Sorry, there are no recent results for popular commented articles.