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What Is Telematics?

Telematics could be the most consequential trend in business that you've never heard of. Even those in the know sometimes barely understand what it is, how it works, and what it means for their bottom line. So what is it, and what's in it for you?

Simply put, its is telecommunications and informatics. The "telecommunications" piece refers to the part of the system that communicates the data created or gathered by the system; this is often a satellite, 3G/4G or wireless connection.

Informatics, meanwhile, refers to the branch of information technology that's concerned with the interaction of humans and computers, and typically refers here to the gathering of location data, speed, idle time, and a host of other metrics, some of which are customizable depending on the system used.

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How Does Telematics Work?

At its most basic, a telematics system consists of a processor, the software that runs the processor and tells it what information to gather, and a means of storing or transmitting that information. The size and configuration of the device is widely varied depending on how and where it will be used. The "black boxes" favored by insurance companies aren't much smaller than the GPS that's in your car's dash or mounted to its windshield right now. A system like Komatsu's Komstat GPS system, on the other hand, is a larger unit that's typically mounted outside the machine.

What Does It Do?

For something so simple (and most systems are as simple, in principle, as the examples illustrated above), it has the potential to provide a significant boost to your bottom line.

Telematics isn't only used for navigation; it's also well-suited to vehicle tracking, whether that vehicle is a sedan, a delivery truck, a taxi or a bulldozer. The ability to customize the metrics collected -- including location, speed, idle time, and fuel consumption -- make it a natural solution for fleet management by eliminating wasted time, wasted fuel, and inefficient routing.

From a central location, dispatching can be made quicker and more efficient, traffic can be avoided, and an entire fleet of vehicles can be coordinated as a unit. Shipping companies, with their often razor-thin margins, can squeeze more efficiency out of their supply chains. And construction companies can use telematics for anything from avoiding gas mains and buried utility lines to protecting their assets from theft.

Case Study:

Allstate Insurance

Allstate Insurance logo

Insurance is but one segment in this fast-growing market. It's significant enough, however, that companies like Tom Tom (mostly known to the consumer market for their easy-to-use GPS navigation devices) have established a foothold.

While some benefits are intuitive, such as traffic avoidance, dispatch efficiency, and fleet tracking, Allstate Insurance has found a somewhat less obvious benefit as they have pioneered the use of insurance telematics.

Drivewise, Allstate's branded telematics system, plugs directly into a vehicle's diagnostics port and fits unobtrusively under the dashboard. The system is designed to collect a variety of metrics, including speed, mileage, braking intensity and frequency, and the hours during which the user drives. The Drivewise program benefits Allstate and its drivers alike. Allstate is able to identify and reward its safest clients.

The benefits to customers, however, extend beyond the money saved on their insurance. Allstate shares the information gathered with drivers, creating a feedback loop that allows drivers to recognize potentially unsafe activities (habitual high-speed driving, late night trips) while also encouraging and reinforcing safer behaviors. Because Drivewise is gathering information directly from the car's onboard computer, the metrics gathered are more reliable than if the company relied on its customers' accuracy in self-reporting.

Drawbacks to Consider

One obvious drawback is the cost. While some systems are fully capable of operating as a single stand-alone unit, or are sold as complete suites, others require an ecosystem of apps and peripherals to function properly.

Installation can be costly, especially if the system is an aftermarket upgrade. As insurance companies begin to embrace telematics systems for their subscribers, for instance, some drivers worry that their premiums could skyrocket; this concern is heightened especially in automotive use, where it might contribute to distracted driving by including not only navigation aids, but also components that allow drivers to search for their favorite restaurants and golf courses. And while these systems have a proven value in asset protection and recovery, some users worry that location data and other metrics could be compromised by hacking, surveillance, or law enforcement overreach.


These concerns, real though they may be, need to be weighed against the obvious benefits. Even the most cursory cost benefit analysis points to the possibilities for telematics in a wide range of applications. It's axiomatic that time is money, and a reasonable investment pays handsome dividends for fleet management, tracking, safety, and asset protection.