What is telematics insurance?

A vehicle fitted with a telematics device or tracked by a smartphone telematics app can collect a lot more data than just the kilometres you travel every time you get behind the wheel. A telematics device can record where you drive, how quickly you accelerate, how fast you drive, how sharply you brake and can even detect potential mechanical problems before they become costly repairs.

Until recently, this information was used mainly by companies managing large fleets of vehicles. Today, it is increasingly shaping the way insurers assess risk and helping motorists become safer, more informed drivers.

What is vehicle telematics?

The technology known as vehicle telematics combines GPS technology, often with onboard vehicle data or data from a Bluetooth tag, to create a detailed picture of how a vehicle is used – locations, mileage, speed, acceleration, braking, cornering, driving times and behaviour and engine performance and diagnostics. It is like your vehicle's digital diary.

The cost of the device may be covered by the insurer and an ongoing monitoring fee bundled in the premium or it may be charged separately.

This information is transmitted securely to a central platform, where it can be analysed to improve safety, identify maintenance issues and, in some cases, influence the cost of insurance.

While telematics was originally developed for commercial fleet operators, it has become more common in private vehicles and can be used for vehicle recovery, fleet management, preventative maintenance and, increasingly, insurance products that reward responsible driving.

What is the difference between telematics and vehicle tracking?

Many people use the terms vehicle tracking and telematics interchangeably, but they are not the same. Vehicle tracking uses GPS technology to show where a vehicle is, making it useful for navigation, vehicle recovery and fleet management. Telematics goes a step further by combining GPS with information generated by the vehicle itself, including driving behaviour, mileage and engine performance.

In simple terms, vehicle tracking tells you where your vehicle is. Telematics tells you how it is being driven.

Why are insurers embracing telematics?

There are good reasons why insurers are so eager to insure vehicles with telematics. Telematics gives insurers a clearer picture of how individual motorists actually drive.

For decades, insurers have relied on factors such as a driver's age, where they live, the type of vehicle they own and their claims history to estimate risk. While these remain useful indicators, they do not tell the whole story. Two motorists of the same age driving identical vehicles can have completely different driving habits.

Telematics reveals these habits and allows insurers to create fairer, more personalised premiums for motorists who consistently drive responsibly.

How do insurers use telematics?

1. More accurate driving risk assessment: Telematics allows insurers to assess how a vehicle is driven.
   
   
2. Combating fraud: Telematics data can help verify the circumstances surrounding an accident or vehicle theft by confirming information such as the vehicle's location and movement at the time of an incident. It cannot eliminate fraud, but it provides insurers with another tool when investigating suspicious claims.
   
3. Encouraging safer driving: Many telematics programmes allow motorists to view their own driving information through an app or online dashboard. This feedback can help drivers identify risky habits, improve fuel efficiency and reduce unnecessary wear and tear on their vehicles. Some insurers also reward consistently safe driving through lower premiums or other incentives.
   
   
4. Identifying risk trends: When insurers analyse anonymous data across thousands of vehicles, they can identify accident hotspots, theft trends and other patterns that help improve underwriting and risk management. These insights can also contribute to broader road safety initiatives.

5. Locating stolen vehicles: Real-time GPS tracking can help locate and recover stolen vehicles more quickly.

As a result of this, policyholders who agree to having telematic devices installed and data transmitted to their insurers can be offered lower premiums, especially those who drive carefully and at safer times.

How else can telematics devices benefit vehicle owners?

Besides insurance, telematics can benefit both businesses and private users by:

• Optimising routes and reducing unnecessary travel.
  
  
• Alerting owners to potential mechanical issues or scheduled servicing, reducing the risk of costly breakdowns.
  
• Identifying inefficient driving habits such as excessive idling, speeding and harsh acceleration that increase fuel consumption.
  
  
• Possibly detecting a severe accident and help initiate emergency assistance (depending on the telematics provider).
  
  
• Assisting businesses with automated driver logs, vehicle usage records and other reporting requirements.
  
  
• Enabling fleet operators to accurately record vehicle usage and working hours for payroll purposes.

How do insurers use telematics to lower your insurance premiums?

Telematics can be used to reward responsible driving with incentives or reduced premiums.

Imagine two motorists.

Sam and Sam’s Bestie are both 35 years old, drive similar hatchbacks and live in the same suburb. They appear to present a similar level of risk.

In practice, however, their driving habits are very different.

Sam rarely exceeds the speed limit, drives mainly during the day and covers relatively few kilometres each year. Sam’s Bestie regularly speeds, brakes harshly and spends long hours on the road late at night.

Although their profiles look similar on paper, telematics allows insurers to measure how each of them actually drives. Insurers can assess their risk more accurately and offer Sam a lower premium than Sam’s Bestie.

Does telematics compromise my privacy?

Motorists often believe insurers use telematics to “spy” on them.

Telematics devices collect your information, but insurers generally state that this information will only be used for the purposes outlined in the policy, which include assessing risk, rewarding safe driving, investigating an accident or suspected fraud and recovering a stolen vehicle.

Before agreeing to any telematics-based policy, you should understand what information is collected, who has access to it and how it will be used.

Does the distance I drive matter?

Yes. Many insurers consider annual mileage when assessing risk. The more time you spend on the road, the greater your chances of being involved in an accident. While telematics can accurately measure the distance you drive, some insurers also offer reduced premiums to those who drive less, relying on odometer readings, estimated annual mileages or policyholder declarations to verify this.

If you work from home, drive infrequently or mainly make short local trips, ask your insurer whether you qualify for a low-mileage policy or discount.

The bottom line

Telematics is changing the way insurers assess risk, moving beyond factors such as age, where you live or the type of vehicle you drive, and is making assessments fairer and, in some cases, lowering premiums.

Before choosing a telematics-based policy, understand what information is collected, how it will be used and what choices you have over your personal data. The more you understand about how telematics works, the better equipped you'll be to choose insurance that matches both your driving habits and your needs.

This article was written by financial journalist Thekiso Anthony Lefifi and reviewed by Desireé Groenewald, a senior technical specialist for product at PSG Insure