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What Is Telematics, and How Does It Affect Car Insurance?

Traditional car insurance policies base drivers' premiums on factors including the driver's age, gender, driving and claims records, a credit-related insurance score, estimated annual mileage, and the make and model of their vehicle. Typically, insurance companies set the rates for such policies by analyzing claims submitted against historical data on the attributes above.

But regular auto insurance policies don’t consider how well you drive, except by factoring in an analysis of your claims and any speeding tickets or other driving violations you’ve received.

Enter insurance that's based on what's known as telematics, or usage-based insurance (UBI) – the use of a sensor in your car or an app on your smartphone to measure driving behavior.

These technologies capture your driving behaviors such as the speed you drive, how you brake, stop and accelerate, and how you navigate turns. Safer driving habits could prompt the insurance company to offer you a discount on your premiums.

But while these policies have potential benefits, there are some downsides to keep in mind.

What telematics measures 

Telematics devices or mobile apps typically record the following about your driving: 

  • Number of miles driven: Telematics measures the quantity of your driving, as well as its quality. According to the Federal Highway Administration, drivers cover an average of 13,476 miles per year, or approximately 1,100 miles per month. The miles you drive factor into regular auto insurance, but the mileage is based on policyholder estimates. 
  • Phone or device usage: Telematics devices and mobile apps track more than just your engagement with the vehicle. They also take note of any digital distractions during your drives. If you tend to use your phone while driving — such as to check a text, or make or take handheld calls — that action will be flagged as a risky behavior. To minimize your premiums, put your phone aside while you're at the wheel.  
  • Speed: How fast you go (and how far over the posted speed limits) affects your likelihood of getting into an accident — and of having to file a claim. Maintaining safe driving speeds and obeying speed limits could help you qualify for lower rates. 
  • Braking and cornering: If you often brake suddenly or take corners at high speeds, the app will track those actions and deem them risky behaviors. To keep your rates as low as possible, keep a safe distance from the vehicles ahead of you and watch your speed around corners.

The impact of telematics on car insurance

Telematics devices and UBI policies can have a significant impact on drivers and their insurance policies:

Improved driving habits

UBI policies with telematics provide feedback on a driver's habits, sometimes even in real time. These devices and mobile apps can give drivers advice on how to improve their driving skills, making it less likely they’ll be in an accident or need to file a claim.

Peace of mind and a driving monitor

By providing a household with information about their driving habits, telematics and UBI programs can be good options for families with teen or elderly drivers. Parents or adult children can use the devices and smartphone apps to monitor their loved ones’ driving and gain reassurance that they are indeed safe behind the wheel. Conversely, the data could reveal dangerous driving habits, which could be curbed before they cause accidents and injuries.

Cost savings

One of the biggest perks associated with telematics from a driver’s perspective is the potential for savings on car insurance. Some insurers give you a discount, at least for a time, just for enrolling in a telematics program. And, if you maintain safe driving habits, you could qualify for additional savings.

Possible drawbacks to telematics

Although there are several benefits to enrolling in UBI coverage, the programs also have potentially negative outcomes.

  • Not everyone is eligible for savings: Because your premiums under a UBI policy are based on your driving habits, not every policyholder will save on insurance costs. Those who have long commutes or tend to go over the speed limit likely won't save money with UBI. 
  • Data privacy might be a concern for you: Some consumer advocacy groups have raised concerns about how insurers use telematics devices and mobile apps, and what personal information may be tracked. Before enrolling in a program, be sure to review the terms and conditions of the insurance policy to understand when the telematics device tracks your information and how it's used – and decide if you’re comfortable with those practices.

Telematics and other options

For drivers looking to save money on their car insurance policies, enrolling in a telematics program like StreetSmart™ by Amica can be a smart move. Participants may earn up to 20% off policy premiums1 by practicing safe driving habits.2 

If telematics isn't a good fit for you, contact your agent to discuss other options. There may be other discount programs you’re eligible for, or you may be able to adjust your coverages to reduce your premiums. 

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This story was created in partnership with Money.com.
 

1 Discount eligibility starts at second policy period.
2 The eligible states include Arizona, Colorado, Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Kansas, Maine, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New Mexico, Nevada, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia and Wisconsin.
 

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