Telematics technology has the potential to help insurers uncover fraudulent claims and offer more affordable premiums to honest customers.
Telematics technology collects information about the location, speed, and driving style of policy holders. It can also detect collisions and their severity with high accuracy. Telematics-based policies have traditionally helped low-risk drivers save money on their insurance premiums. But insurers are now also looking to use Big Data collected by drivers to save customers money, by reducing the cost of motor fraud.
Fraud is estimated to cost insurance policy holders up to £50 a year (across all products) and the value of detected fraud is in excess of £1bn, according to the Association of British Insurers. A reduction in fraud would lower claims costs for insurers. This would then allow insurers to pass the savings made on claims costs to customers through lower premiums. This would be especially welcome in the motor insurance market, which is under high pressure to make premiums more affordable.
Telematics technology has been able to disprove fraudulent claims by giving evidence that collisions did not occur, or did not occur where they were reported to have occurred. It has also been able to ascertain links between policy holders prior to the claims. A case in June helped an insurer save £500,000 by disproving a highly complex fraud ring.
As a greater number of cars become connected, fraud will become riskier. Therefore insurers will see the benefits of lower claims costs, which in turn will benefit customers through more affordable insurance.
By Danielle Cripps, General Insurance Analyst