What to watch out for with telematics insurance

A Volkswagen driving down a wet road

Black box or telematics car insurance is inexorably growing in the marketplace, but what are the pros and cons if you're considering a pay-how-you-drive policy?

Did you know...?

  • The ABI is working on agreeing a common data standard for telematics policies
  • This should help telematics customers 'prove' their driving skills and eligibility for no-claims bonuses if they switch provider

Telematics car insurance is often called 'black box', but like most things in life it would be simplistic to view this technology as a black-and-white issue.

For every driver who vows never to succumb to 'Big Brother' surveillance whilst behind the wheel, there will be others who regard savings on their premium and other benefits as an acceptable compromise for some digital supervision.

As Malcolm Tarling - spokesman from the Association of British Insurers (ABI) - puts it: "Telematics are not the right policies for everyone.

"They are not a silver bullet to cheaper insurance. There will be terms and conditions as there are with all types of insurance products.

"No-one is saying that from a certain date everyone will have to have a telematics policy. The technology may be there, but it's about what the customer wants."Telematics car insurance

Like all new technologies, there are plenty of issues - both emotional and practical - that come with telematics, a product that's still in its relative infancy.

Here are some of the main things to take note of:

Data collection and no claims bonuses

One consideration on telematics arises from the very fact of its newness. As of April 2015 there are no standardised regulations on what exactly is being recorded and how it's being done.

Potentially, this could mean that if a telematics customer wanted to switch insurer at renewal, the new company could refuse to accept their data - on speed, location, braking, cornering and time of use, for example - because the way it was gathered differed from their methods.

Any hoped-for reductions for careful driving could therefore be lost, meaning drivers may not benefit - as they can with traditional policies - from building up a no-claims bonus.

Did you know...?

  • The Data Protection Act 1998 requires insurance companies to seek the active consent of customers before passing on personal information

The ABI is aware of this issue and is currently working on a common data standard.

Privacy and data protection

A more difficult issue to overcome for some customers will be the perceived loss of privacy - the feeling that an extra pair of eyes is watching their every move and that the information gathered could eventually fall into the wrong hands.

The worries are that third parties - other companies, the police, even government agencies - may get passed personal information that the driver would not want disclosed.

The Data Protection Act 1998 requires insurance companies to seek the active consent of customers before passing on personal information and Tarling insists: "The safety and security of data is an important issue which insurers are acutely aware of.

"We are increasingly becoming information-rich and there is more data for individuals. This has plusses and minuses.Van insurance

"On the plus side, it does help insurers better assess risk and work out premiums. That can benefit individual consumers.

"On the other side, there have to be safeguards over data protection. It should not be erroneously used, mis-classified, or give rise to incorrect assumptions."

Restrictions on vehicle use

There are more practical matters that any customer considering telematics should also reflect upon and they should bear in mind that regular factors such as age and occupation will still enter the insurance equation.

Some companies offer pay-as-you-drive policies that charge for cover per mile, whilst others may impose night-time or early hours curfews with fines for those drivers that break them.

This may, for example, suit some young drivers, but not those who occasionally drive long distances at night - perhaps home from college, for instance.

There can be other restrictions such as the number of miles travelled during certain hours - in rush-hour traffic, for instance - or the types of roads being used.

This all means that whilst monitored driving may lead to the reward of a reduced premium, it could also increase a premium if the driving is considered unsafe or outside of the policy terms.

Vehicle changes and black box removal

Additional fees can sometimes be imposed for changing a vehicle, or for the removal from the car of the telematics system itself.

If a driver needs to brake sharply to avoid an impact and they brake softly to please the black box, you can have some bad unintended consequences
Peter Rodger, Institute of Advanced Motorists

Effect on driving habits

While telematics is typically seen as a way of nurturing and encouraging good driving, a consideration might be the degree to which a driver may alter his or her habits inappropriately.

Peter Rodger, chief driving examiner at the Institute of Advanced Motorists, says: "A black box only tells you what a vehicle is doing, not what a driver is doing.

"If a driver needs to brake sharply to avoid an impact and they brake softly to please the black box, you can have some bad unintended consequences."

Likewise, as Tarling recalls, there was an inquest into the death of a young driver in 2013 at which the coroner suggested speeding had been prompted by the driver's attempt to return home before an insurance-imposed curfew.

By Graham Thomas