The cost of car insurance is ever increasing, leading drivers and fleet owners to look to new technologies to find new ways to reduce the cost of their premium.
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One of these options is telematics, where a black box installed in your car records your driving behaviours in exchange for a reduced premium. While commonly used by new drivers, this method of insurance technology is gaining popularity in other areas too. In this bulletin the Gallagher Automotive team take a look at telematics and the impact they can have on insurance premiums.

The general consensus on telematics

A survey from The Floow reveals that 40% of people believe that improving driver awareness is the best way to make roads in the UK safer . One way to do this is through telematics, which an additional 38% of people would like to see be made compulsory for all new drivers. This method has already been introduced in Italy with some success. As an alternative to compulsory telematics, respondents also suggested graduated licenses for new drivers which would start off with telematics.

Telematics do also benefit fleet drivers by creating a culture of safer driving (due to the data collected) which can impact their insurance premiums and reputation. Furthermore, logistics companies can utilise this new technology to their advantage by calculating the time taken before a vehicle returns to the depot in order to ensure the next consignment is ready and loaded and that the next delivery driver is ready to go as well.

Why choose telematics-based insurance?

When your car insurance premium is calculated, your insurer looks at a number of factors before deciding on a premium. These can include your age, how long you’ve had a full license, the make and model of your car and your occupation. Telematics insurance also includes reports on your driving behaviour stemming from the black box installed in your car. This tells your insurer the length of the journeys you take, the roads you tend to choose and how smoothly you drive.

Generally, a policy using telematics will initially cost the same as a normal policy, but as the data about your driving creates a bigger picture for your insurance company, you may then begin to see adjustments to your premium. Everything from the time of day you use the car to your driving style can impact on your premium as car accidents are more likely to happen at night or at rush hour.

One group of unlikely benefactors of telematics insurance are those with driving convictions, who can find these policies more affordable than a regular one. They can also benefit careful drivers, those who rarely drive and those who travel out of the regular commuting hours.

These policies will not benefit everyone however; in fact it is likely to be more expensive if you are a driver over 25. Research by Money Supermarket revealed that for someone in the 40 to 49 age bracket is likely to pay £200 more than they would on an average policy. This is probably due to the lack of No Claims Discount.

Do black boxes encourage safer driving?

While black boxes cannot prevent accidents, they do encourage safer driving by offering potentially cheaper insurance as a reward. It can also provide essential information after an accident or if your vehicle is lost or stolen. It can also help to calculate an insurance claim as it could prove whether or not you were driving erratically in the events leading to the crash.

One of the big issues with the black boxes is that there is a potential to ‘reset’ data by switching insurer, starting afresh with new data however you would have to pay for a new box and this could potentially increase the cost of your cover due to data not “rolling over”.

That said, many vehicles coming off of the production line nowadays have telematics (or an element of it) built in as standard driver ‘convenience’ features and ultimately supplies the same sort of data, for the drivers to monitor their own driving style. So, in theory, Insurers could collaborate with manufacturers to create policies that take this data into consideration when underwriting a risk – however, the data is still owned by the driver so their expressed consent would be required.

Issues with data privacy

While it may seem like telematics is a blessing to a new generation of drivers, the technology has been under scrutiny as of late. In fact, the Financial Ombudsman has added it to its watch list following customer concerns about the fairness and accuracy of the data collected. The organisation’s annual review showed that 339,967 components occurred from 1 April 2017 to 31 March 2018.

Chief executive Caroline Wayman said:

"Tens of millions of people in the UK have car insurance. However, disputes we’ve seen this year involving “black box” policies highlight how, while greater use of data can bring benefits, it doesn’t necessarily work out for everyone. The challenges raised by the trade-off between personalisation and privacy – and between convenience and security – are issues that cut across different financial products and services."5

This ties in generally with concerns about data privacy in the wake of the GDPR, with issues about how data is collected and what it is used for at the forefront of any new technology. Telematics data is not just for the insurer, it is also to help the driver improve their driving style. Telematics users can track how they are doing using an app or secure website, and many systems have a driving ‘score’ which can have a direct impact on your premium. In many cases, an improved score will reduce your premium while a reduced score will increase it.

So can a black box reduce your insurance?

If you are a young driver, then the answer is almost certainly yes. Telematics companies generally claim they can reduce premiums by up to 25% for younger drivers and Money Supermarket’s independent research correlated with this, finding that drivers aged 17-24 could save £363.25 on average.5

However you should also consider the cost of installing the box, as well as what happens if you want to change insurers or it is damaged.

Our conclusions

Overall, whether telematics insurance is suitable for you depends on your age and driving ability. On one hand, they encourage safer driving by rewarding good behaviours, yet they also collect large amounts of data – the accuracy of which is currently under investigation by the Financial Ombudsman. It may also become the way insurance is rated for going forward, given that new vehicles are being produced with these features as a standard specification (i.e. connected cars) and once a landing has been reached on who owns the data collected.

The automotive industry is becoming increasingly more reliant on technology, and telematics are just one way that this is impacting automotive insurance. With insurance for younger drivers becoming prohibitively expensive, telematics could provide a way to combat the risks of new drivers on the road and offer affordable cover. It is also a useful risk management tool for fleet owners to monitor the whereabouts of their vehicles and the way they are being driven so as to build into their Risk Profile when obtaining insurance.