Impact of telematics on automobile insurance


Insurance is heavily related to our lives, but there is a tendency to avoid much interaction with it due to their traditional culture of being overly complex and expensive. Automobile insurance might be the first interaction that many people will have with the insurance industry after getting their first driving license. However, automobile insurance is not an exception and has always been expensive especially for us young adults, thanks to our high accident rates. 

figure 1: Rates of Motor Vehicle Crashes in Relation to Driver Age, United States, 2014-2015,

In fact, this has always been an issue not only in automobile insurance but also in the entirety of the insurance industry. Insurers cannot examine every policyholder and quantify the risk associated with the insurance. Hence, insurers use historical data to help gauge the average risk associated with that group to decide on the premium. This is an optimal way for insurers but is suboptimal for people with low risk.

Benefits of telematics

As mentioned earlier, insurers were unable to examine every policyholder’s risk, but this was until telematics came out. Telematics is any sort of device that can collect, store, and transmit data retrieved from remote objects. Many automobile insurers started installing telematics in their policyholder’s vehicles. Unlike the traditional data that insurers used, underwriters can now examine active data retrieved from that specific policyholder to quantify their risk. For example, drivers with frequent hard braking, high speed, and long-distance drive will be charged with higher premiums while the opposite drivers will benefit from the low premiums. This way, insurers can personalise risk with each policyholder, making automobile insurance affordable even for young drivers. Telematics also benefits insurance companies by endorsing safe driving. Since policyholders are now aware of telematics collecting their driving data, changes in their driving behaviour will eventually decrease insurance claim payouts. Telematics can also provide insurers with accurate data related to car accidents. This data will prove invaluable in the prevention of insurance fraud.

Policyholder Insurer
– Reduced premiums 
– Transparent pricing system 
– Safe driving 
– Personalisation
– Reduced insurance claim payouts
– Prevention of insurance fraud 
– Customer satisfaction 
– Access to active data

Disruption of the current market

If used properly, telematics will benefit both policyholders and underwriters within the auto insurance industry, but that is not how this market is being disrupted. The significant disruption expected within auto insurance is the emergence of non-traditional companies that were not involved in insurance before. One good example would be Tesla starting their own insurance (limited to California). Car companies have access to a tremendous amount of data that insurance companies are unable to retrieve. Tesla is using this as an advantage to personalise premiums for each policyholder and consequently, snatching customers from insurance companies. The technological advancement and the use of telematics allowed these non-traditional companies to enter the market. Auto insurance companies constrained to legacies and traditional methods are now under threat by startups and businesses. Such a phenomenon will enhance competition and enrich the market.

Problem with telematics in auto insurance

Telematic is revolutionary but it also has some drawbacks; one of which being privacy. Allowing insurance companies access to crucial data might be problematic as this valuable data can be sold to other parties for their benefit. For instance, telematics might have detected malfunctioning inside the engine. This data can instantly be sold to parties like repair shops, which could jeopardize customer privacy. Telematics often have GPS installed and this is another privacy issue. If telematics in auto insurance becomes more prevalent, there will be policies regulating its usage for protecting customer privacy. The age of telematic-used automobile insurance is still far ahead. 

The future of telematics

figure 2: The direct channel and aggregators market share in UK private motor insurance,

The automobile insurance industry has been disrupted by innovative business models several times and telematics are not the first instance. Policyholders used to buy insurance directly from insurance companies. However, in the early 2000s, aggregators entered the market and with their flexible and wide range of insurance plans available across a variety of insurance companies, direct insurance was soon overwhelmed, as seen above. Telematic-based auto insurance could follow the same trajectory as aggregators, considering the aforementioned benefits of telematics. Although there are still lots to overcome for telematics to become prevalent in automobile insurance, the appearance of this technology has significantly disrupted the industry. Will telematics takeover the traditional auto insurance? I hope this question will be answered on our website in the coming future.

Futa Takahashi, London School of Economics and Political Science (LSE)


  • Insurance Telematics: A Game-Changing Opportunity for the Industry. Accenture, Accessed 9 Sept. 2021.
  • aaafoundation. “Rates of Motor Vehicle Crashes, Injuries and Deaths in Relation to Driver Age, United States, 2014–2015.” AAA Foundation, 14 June 2018,
  • Kaesler, Simon, et al. “Friends or Foes: The Rise of European Aggregators and Their Impact on Traditional Insurers.” McKinsey & Company, 10 Dec. 2018,

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