Beginners' guide to telematics car insurance

Read our guide on pay as you drive or telematics car insurance policies and understand how your driving behaviour can affect your premiums.

Key points

  • Although often thought to be an option for young and inexperienced motorists, drivers of any age could potentially benefit from policies based on the way that they drive
  • Telematics will not be suitable for everyone, and all policies will differ - read terms and conditions with care
  • allows you to compare traditional car insurance policies alongside telematics options

Telematics insurance - sometimes called black box insurance, pay-as-you-drive or pay-how-you-drive insurance - is a rapidly growing area of the industry that's revolutionising the way we think about car insurance.

Traditionally, companies base premium prices on factors such as the vehicle's insurance group, the age of the driver, their experience and history on the road - read more in our page on how car insurance quotes are calculated.

All such factors also play a part in telematics, but - rather than relying on general assumptions about things like the driving habits of your age group - insurers will use electronically gathered data to calculate, and recalculate, your quote based on your specific driving skills and habits.

There are numerous potential benefits to such an approach but - as just one - it should allow young, safe drivers to quickly prove their driving skills to an insurer, potentially taking them out of the category of motorists seen by insurers as being the highest risk.

Remember that telematics policies have the potential to offer benefit to drivers of any age, including older and more experienced motorists.Telematics car insurance

They will not be the right insurance choice for everyone, though.

As well as examining each individual policy with care, drivers should understand the pros and cons of telematics generally, factoring in things such as privacy, data collection and any restrictions on usage.

How does telematics work?

Your insurer will either ask you to use a mobile phone app, or will install a small device known as a 'black box' on your vehicle.

A black box is typically about the size of a smartphone and should be installed discreetly, perhaps under the dashboard.

The app or black box will use telemetry and satellite technology to record and transmit data about your driving habits back to your insurer.

What sort of data is captured?

Different companies will be interested in different things and will monitor and measure your driving accordingly, but typical things would be when and where you're driving; the type of road; how fast you're going whether you're within speed limits; how forcefully you apply the brakes; how you take corners.

Did you know...?

  • Rather than waiting until renewal, with a telematics policy your premium price may be reassessed on a more regular basis

Drivers who exhibit safe driving habits will then get better deals than those whose statistics highlight problems, or those who use their vehicle in ways deemed to be a higher insurance risk.

Some telematics policies will give an initial bundle of miles as a kind of driving 'allowance', but may penalise you if you go over that limit.

With such policies, more miles can be purchased should they be required, while certain providers will reward safe driving with an additional mileage allowance.

Telematics benefits

Fairness and price may be seen as benefits of telematics policies - your premium will be based on your driving skills and habits, thereby benefiting some groups and penalising others.

Rather than waiting for renewal to see the benefits of good driving, your premium price may be reassessed on a more regular basis, perhaps every few weeks or months.

Did you know...?

  • Some policies offer an online portal for you to study your driving skills

Beyond price and fairness, a black box device (which may be installed for free, or for a small fee) can help to track a vehicle if it's stolen - stand-alone security tracking devices may cost several hundred pounds.

There may also be benefits in the event of an accident. Some telematics providers will receive an alert if this happens and - if your car is stationary - they may try to contact you on your mobile phone to check that you're ok.

If the data collected suggests a more serious collision, the insurer can alert the emergency services.

Information gathered from an accident or incident can also be used in the event of an insurance claim, providing an impartial source of data that, it has been suggested, will help to cut the spiralling cost of insurance fraud.Van insurance

Some policies will offer an online portal for you to study - and, hopefully, improve - your driving skills.

This could potentially be used by parents to monitor the driving behaviour of their newly qualified motoring offspring - although it's possible that the child will not see that as a benefit!

The negative side of telematics

As already noted, the fact that premiums will be based on driving skills and habits will negatively impact on some motorists.

While there may be little sympathy for dangerous and unsafe drivers, depending on the policy you may also be penalised just because you regularly drive to work during rush hour, or late at night.

There are certainly situations where drivers will need to apply their judgement to conditions on the road rather than to the perception of what the telematics technology is looking for

Some policies may fine you for driving at such times, or even ban you completely - meaning that your insurance would be invalid if you did take to the road at the wrong hour.

Certain providers will charge for the black box device, others only for its installation, while others will charge nothing at all.

Make sure you ask your insurer what will happen in the event of a policy cancellation, if you change providers, or if you change cars - there may be extra costs to consider.

Pay careful attention to your policy's privacy terms and conditions - after all, there's very personal data at stake here.

Usually, though, the data will only ever be used to manage your insurance policy or in the event of an accident or claim.Car

Bear in mind that the Association of British Insurers (ABI) is still working on a standardised form of data collection and storage - until that's in place, there are potential problems in areas such as proving your entitlement to a no claims discount to a new insurer.

While the box doesn't make any noise, some have concerns about the effect of the device's presence on new drivers, claiming that it can prove distracting and nerve-inducing.

As such, very anxious drivers may wish to get comfortable with driving before installing the technology.

What's more, there are certainly situations where drivers will need to apply their judgement to conditions on the road rather than to the perception of what the telematics technology is looking for.

For example, braking sharply may be penalised by the black box, but it's better than crashing into the vehicle in front!

Why not look at the options?

While telematics policies won't be right for everyone, it's worth looking at the choices and deciding whether it's right for you.

You may find that telematics eventually becomes the default option and that you'll have to pay extra for a more 'traditional' sort of policy

If you compare telematics car insurance through's quotes service, your results page will present the usual company, policy and price information.

What's more, you'll see the traditional (non-telematics) policies that are available alongside telematics options, so you can look at those options as well - the different types of policy will be clearly labelled.

Before purchasing you can click through for a more detailed breakdown of the product, including whether the policy is based on your driving behaviour and/or mileage limits, plus star ratings from independent financial researcher Defaqto.

It's the future...

Whatever your feelings about telematics, bear in mind that it's a growing area that shows little sign of slowing down.Wallet

As the insurance industry gets behind the product as a definable and measurable way of calculating risk, you may find that it eventually becomes the default option and that you'll have to pay extra for a more 'traditional' sort of policy.

"By 2024 telematics will be an opt-out rather than an opt-in," said's Tom Lewis.

"People may opt out because they're bad drivers, they're unhappy with privacy arrangements or they have an old car, but they'll have to accept a higher premium for opting out."

Got more questions?

The ABI has produced a consumer's guide to the product, plus a detailed good practice guide to telematics for the car insurance industry.

By Sean Davies