Telematics insurance has traversed more than two decades, cycling through phases of curiosity, dedication and subsequent disappointment. Only recently has the U.S. auto insurance sector acknowledged its pivotal status as a fundamental capability within the personal auto line.

Telematics pioneers like Nationwide have successfully moved beyond the discount-only pricing programs that once defined the space to positively impact policyholder driving behaviors and start to reshape how we think about auto insurance.

Beyond Upfront Discounts

For many years, insurers predominantly relied on approaches centered around onboard diagnostic (OBD) devices that were provided to policyholders solely to evaluate their driving behaviors over a limited period. An incentive in the form of upfront discounts was extended to encourage participation, and upon policy renewal, proficient drivers were granted supplementary discounts.

This IoT approach, involving the collection of insights for a restricted duration, represents a rudimentary implementation of the IoT framework. This is largely a result of the sector’s limited maturity in harnessing telematics data and the elevated cost of the devices involved. The exclusively “discount-only” approach restricted insurers’ ability to improve price accuracy. The primary value for insurers predominantly emanated from self-selection: within each pricing tier, a greater proportion of comparatively good drivers exhibited an inclination to enroll.