How is telematics used in car insurance?

Written by: Sarah Sidlow
• Updated •6 min read
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Side view of responsible woman fastening a seatbelt before driving a car.Image: Side view of responsible woman fastening a seatbelt before driving a car.

In a Nutshell

Many car insurance companies use telematics to offer usage-based insurance programs that could provide deep discounts to drivers. If you’re willing to track and record your safe driving behavior, you could save money on your premium.
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When it comes to car insurance, some companies employ a data-tracking technology called telematics that could lead to big savings on your premium if you opt in.

Some insurers use telematics to monitor driving behavior — and other metrics — in order to calculate your driving score. You could see your monthly premium shrink if you drive safely according to your insurance company.

What is telematics in car insurance?

In car insurance, telematics is a way of measuring, tracking and recording data involving your driving behavior. Telematics is not a specific type of insurance coverage, but insurance companies may be interested in the data it collects.

Telematics is a device or program that helps monitor driving behavior. Some examples of what it monitors include the number of miles you drive, what time of day you drive, where you drive, and how fast you accelerate, brake or take corners.

Usage-based insurance and telematics

Some car insurance companies use the data collected via telematics to provide usage-based insurance, or UBI, a type of insurance program where the premium you pay is based on your driving behavior or mileage.

Traditionally, insurers use things like your age, driving history, vehicle, credit and location to calculate the cost of your premium.

But with a UBI program, an insurer also considers your mileage and other driving habits in calculating your insurance cost. That means you could lower your bill if you’re a safe driver or don’t drive very often.

Many insurers offer discounts simply for signing up for their UBI programs. Once you’ve completed the trial portion, you could save as much as 10% or more on your premium.

Pros and cons of telematics in car insurance

Pros of telematics in car insurance

Using telematics in car insurance allows insurance companies to calculate risk more accurately. This means safe drivers or those who don’t drive very much don’t overpay for a policy designed using a one-size-fits-all approach.

Plus, according to studies by the National Association of Insurance Commissioners, UBI programs may incentivize drivers to drive more safely or to drive fewer miles, reducing accidents and traffic congestion.

Another benefit of using a telematics program is crash assistance — when your trips are being monitored, the device or app you’re using can detect if you’ve been in an accident and send help your way.

Cons of telematics in car insurance

Some customers may be concerned about their privacy when it comes to using telematics devices. In many cases, telematics devices track and record your location along with other information about your daily life — like when you drive your car to certain places like work or school. 

Because of those privacy concerns, the availability and scope of telematics vary by state, and different insurers have different limitations on the data they collect.

You’ll also want to ensure you’re the kind of driver who could benefit from a usage-based insurance program. For example, if you log a lot of miles on your commute to work, you may be better off with a more traditional insurance model.

How does telematics work in car insurance?

Here are some ways insurance companies use telematics to track your driving habits. Not all of these options are available from all companies or in every state.

Plug-in devices

Some companies will mail you a small device that plugs into your car, usually on the steering column. 

The device will log all your car’s trips and beep when you make what the company considers a hard brake. In general, the less your device beeps, the greater your potential discount could be. Depending on the program, you may keep the device installed in your car or return it after a certain period.

The insurance company will give you a report about your driving — and what that means for your overall bill.

Mobile app monitoring

Mobile apps are another popular method of recording drivers’ data. With this approach, drivers download an application that uses Wi-Fi and their location data to monitor their driving habits.

These programs may also record whether you use your phone while driving, which can count against you. 

Many large insurers offer mobile app monitoring for their UBI programs.

Bluetooth monitoring

Some insurers use a combination of a mobile app and a Bluetooth beacon to monitor your trips. To use this type of program, you’ll need to keep your Bluetooth and location services active on your phone and install the small Bluetooth beacon device into your car.

Manufacturer built-in

Some newer cars may come with telematics functionality built in. For example, Tesla uses built-in systems to monitor driving behavior, which can determine your premium via Tesla insurance. It can also provide data to the company about when your car needs service.

Car insurance companies that use telematics

Today, many major car insurance companies use telematics in some way, though their methods, potential discounts and availability may vary. Here’s a look at some other car insurance companies that use telematics.

Liberty Mutual

Liberty Mutual’s RightTrack usage-based insurance program offers a robust discount opportunity with an instant 10% discount on enrollment and up to 30% off your auto policy for safe driving.

Customers can participate in the RightTrack program via a mobile app or plug-in, which will track their driving for 90 days. Depending on your state, your discount will be applied when you complete the program or renew your policy.

Metromile

Metromile, which is owned by insurance company Lemonade, has a model that focuses on pay-per-mile auto insurance. Its website claims that customers save an average of 47% on their premiums compared to their previous policy.

With Metromile’s RideAlong telematics program, customers download the app and apply for the RideAlong program. Then, they drive like they normally would for 17 days, which gives Metromile enough information to calculate an accurate rate based on how many miles you drive.

Root

Root bases its rates primarily on how safely its customers drive, considering things like gentle turning, smooth braking, driving during safe hours and not using your phone while you’re behind the wheel. 

Its mobile app uses the sensors in your smartphone to track your driving and allows customers to manage their coverage and make claims.

FAQs about telematics in car insurance

Is usage-based insurance and telematics the same thing?

Telematics is the practice of gathering and transmitting information. Many car insurance companies use telematics tools to inform usage-based insurance models, which calculate your insurance premium based on factors like mileage and safe driving.

Can using telematics save me money on my car insurance?

UBI programs that use telematics can offer big savings for car insurance customers. Many car insurance companies offer safe driving discounts that rely on telematics. Others calculate your rate based on your mileage, which is tracked via a telematics device or mobile app.

How to sign up for telematics car insurance

Every insurer is different, but generally, you’ll be asked to download a mobile app or install a small device in your car. The amount of time you’ll need to drive to see potential discounts varies by the insurer.

What’s next?

If you are a safe driver or don’t drive your car very far or very often, it might be worth looking into a usage-based insurance program that uses telematics. Many major insurers offer these programs, so if you’re happy with your current coverage, you may want to see if your insurer has a program you can join.

If you’re shopping around, be sure to learn about what kind of discounts you may be eligible for by signing up for and participating in a UBI program.

About the author: Sarah Sidlow is a freelance writer and editor based near Detroit. She has a master’s degree in journalism from Georgetown University. Sarah’s work has appeared in Luxembourg’s national newspaper, Washington City Paper… Read more.