by Ken May
Have you noticed how much technology is changing auto insurance? Rates are unstable and companies are panicking. Most of the technology is good! It creates a safer vehicle and warns drivers of imminent danger.
Way back in 1988, Proposition 103 was passed in California. Simply put, prop 103 dictates how auto insurance companies are allowed to set rates in California. Companies must use three main factors; your driving record, how long you have been driving, and how many miles you drive per year. The first two factors are pretty much set in stone. Reports can be run to determine what is on your driving record and it is almost as easy to determine how long somebody has been licensed.
But the wild card is annual mileage. People may not realize how much they actually drive. Or they might purposely say they are driving less miles to get a lower rate. Or, a desperate insurance agent may lie in order to gain a competitive advantage to win the business putting the client at risk.
Companies are starting to use telematics to accurately determine how many miles a vehicle is driven in any given time frame. Using fancy labels like Certified Mileage, Validated Mileage, or RealDrive, a company will obtain an exact odometer reading from a vehicle and then use a company like Carfax to provide prior odometer readings glossed from oil changes or smog tests. This gives the insurance company accurate underwriting information and takes the power out of the hands of the consumer and the agent.
Many companies now offer two options, one with a certified mileage program and the other with an estimated mileage program. I predict that it won’t take very long before the certified mileage models dominate the California marketplace.
One great thing about the certified mileage programs is that the insurance companies offer a discounted rate to those that sign up. The program would not be for clients who are planning long driving trips though.
What about property insurance? Telematics are being used there too. Using data generated by smart home technology and the “Internet of Things”, sensors can transmit data to the insurance company in real time triggering a communication platform to contact their clients or the client’s preferred vendors about such things as water leaks or temperature changes. This allows them to nip potentially big problems in the bud to prevent a much larger loss.
Technology isn’t going away. Fortunately, the insurance industry is using technology to provide a safer environment for the consumer, determine the proper price for an insurance policy, and eventually could even lower premiums based on less claims payouts.
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