Tell me if you've heard this one before: The insurance market is hardening. Policy rates are going up and independent insurance agents need to help personal lines clients manage those impending increases.

However, the story has changed in recent years—through telematics.

Some independent insurance agents may be skeptical. That's to be expected. Many have been hesitant to adopt telematics for a number of reasons, including not fully understanding what it is, being unaware of the benefits, and a misconception that telematics will invade the privacy of clients by tracking their every move.

To some extent, agents can't be blamed. Different companies employ different approaches to telematic systems, so there isn't a “one answer for all" knowledge base.

Let's walk through the basics of how telematics can be a crucial tool to serve personal lines clients, particularly as they navigate rising auto insurance rates.

Understanding Telematics and Its Benefits

It's essential to know telematics is usage-based insurance. In auto insurance, it tracks mileage and driving behaviors tied to a specific client, rather than an average based on the historical experiences of ranges of consumers. For clients with good driving skills, this approach will most likely result in lower auto policy premiums. The proactive nature of offering these clients the value and savings telematics provides will establish goodwill and may drive higher client retention.

It's important to consider which existing clients an agent should approach about deploying a telematics-based policy: Those clients without prior claims for auto accidents are an excellent place to start.

A next step would be to establish timelines regarding clients' last claims as a means for who to contact next. Group clients by years: 15 or more since their last claim, 10 to 15 years, 5 to 10 years, and finally less than 5.

For new clients, the approach should be even simpler: present them with two quotes—one based on telematics use and one without. If they have a clean driving record, they may appreciate the ability to save money using telematics. Absent poor driving skills or higher risk driving habits, a usage-based premium will typically start at a lower price. 

Privacy Concerns

The issue of where to draw the line on privacy while also meeting a client's needs is not something the agent should attempt to address on behalf of the client. Rather, the agent's role is to help the client understand what is being tracked. Present the information as it pertains to the client and empower them to act in their own best interests.

Bear in mind that, in addition to learning if the client is a frequent hard braker, the tracker can also be helpful with general vehicle diagnostics: low oil, gas usage and more. Additionally, the telematics device can improve accident response times and assist significantly in stolen vehicle recovery.

It may also be important to emphasize what telematics isn't doing, such as recording in-car or Bluetooth-enabled phone conversations or what shops or restaurants they frequent.

How to Implement Telematics

To minimize any confusion among the different telematic systems used by various carriers, simply select two or three carriers through which your agency will initially offer telematics. Based on carrier relationships, most agents probably already know what carriers to choose, but make sure to do research first.

For instance, some insurers require the client to keep the telematics device running 24/7, 365 days a year. The premium is adjusted at renewal based on actual historical experience and repeated annually. Other carriers are more interested in obtaining raw data and may require the client to use the device for a shorter period, perhaps 90 days. Almost all carriers offer a discount for the initial use of telematics. Some will keep that discount in place. Others will only offer it while the usage-based system is active.

As for the device itself, it is typically plugged into the vehicle's onboard diagnostic port below the dashboard. Some carriers offer a mobile app integration as well, allowing the client to see data in real-time. Others may not offer such integration yet.

Like smartphones, smart cars and other technology integrations, telematics is as much a reality as the hardening insurance market. But the final chapter isn't yet written. Telematics may help mitigate current market challenges, but insurance agents and their clients will miss out if they don't take advantage of this opportunity.

Doug Coombs is the executive vice president and chief marketing officer of Strategic Insurance Agency Alliance Inc. (SIAA).