Age, gender, address, car type – this is the usual blurb insurers use when calculating your car insurance premium. Working to a set of generalised assumptions, it’s no surprise then that an 18-year-old male, living in a winding-road suburbia insuring a high-spec, nippy vehicle will be hit with an eye-watering figure. With nothing else to go on, insurers are going to assume the worst. Indeed, young drivers in general are stacked with high premiums as standard; males can expect an average £2,977 premium while women are looking at £1,686 (according to the AA Insurance Premium Index), and the latter figure is set to rise in December when women lose their gender advantage in the insurance arena.
Insuring a car is a costly business for young’uns, and pretty unfair too, especially if the 18-year-old fella mentioned above will only be pootling to the shops and back, rather than tearing around the countryside in the middle of the night, as insurers immediately assume. However, the sustainability of this insurance model is hanging in the balance thanks to the emergence of telematics, or ‘black box’ insurance.
Launched back in 2008, telematics insurance failed to make a splash, and quietly slunk off the landscape. A second incarnation in more recent years, however, has seen it make a notable impact – one which may well change the face of car insurance altogether.
The premise is simple: a GPS-enabled device is installed under the dashboard of a vehicle, and measures things like speed, braking force, routes taken, times of day spent on the road, and so on. There are several different types of telematics products available on the marketplace - some price on the number of miles or the time of day that you drive, for instance. But the ones which could have the most impact for young motorists are the ones which relay driver’s styles and habits to the insurer, which will adjust the premium accordingly, rewarding drivers for good habits, and penalising others for sloppy behaviour. Individuals will pay a price that reflects the reality of their driving, rather than the imagined reality that traditional policies represent. (Indeed, Transport Secretary Justine Greening recently told The Daily Mail that “The cost of car insurance is bearing increasingly little relationship to the real world where motorists act more responsibly than ever and accidents really do happen less often”.)
The savings have the potential to be substantial. The AA, which has recently launched a black box product, says that premium savings of up to £850 could be achieved, while the Co-operative, which has 12,000 17-25 year olds signed up to its young driver insurance, estimates that £20 million will be returned to customers in lower premiums over the next three years. Penny Searles, Director of telematics solutions company Wunelli, says that due to the inherent nature of the insurance, most policy holders will generally see a tidy saving. “Simply on the basis that these motorists are happy to have their driving monitored suggests they’re probably decent drivers. After all, you’re not going to sign up for this product if you repeatedly and knowingly break the law, or drive haphazardly.” Furthermore, she notes, telematics insurance can actually encourage safer driving. “Policy holders can log in to an online portal that holds all the data on their driving, so – especially in the case of young drivers – they can use it as a mentoring and development tool. Plus the presence of the box can help alleviate peer pressure. If you’ve someone in the passenger seat urging you to drive faster, it’s not a big deal to say ‘I can’t. I’ve got an insurance policy that looks at my driving.’” She adds that such insurance may very well be saving lives, too. “This can’t be quantified, of course, but how many black box policies have prevented terrible collisions and accidents because they’ve prevented late-night driving? Or have alleviated peer-pressure? This is a really important message that is often overlooked.”
The government is also turning its attention to the product, as it’s likely to play a large role in fraud prevention. Dubbed the whiplash capital of Europe by Prime Minister David Cameron, the UK sees more than 1,500 whiplash claims lodged every day, costing the insurance industry up to £2 billion a year and adding around £90 to the average car insurance premium. Claims have gone up by more than a third in the last three years, despite the number of accidents falling by 16 percent in the same period. Telematics could help to reduce these figures. “Black box insurance can help to prove or disprove a claim,” says Penny. “Insurers would be able to see how fast a vehicle was moving – if at all – and whether that tallies with the claims being made.” Indeed, telematics insurance ticks a lot of boxes and is creeping up the insurance agenda, but it’s unlikely we’ll ever see a day when every car is fitted with the technology, Penny says. “Insurers have to pay around £200 to fit a box in a car, so while the technology is still expensive, they’ll need to see that pay off. They probably wouldn’t be interested in an older man with a flawless record driving a family car, for example.”
Nonetheless, telematics taking an increasing share of the industry would allow customers some control of the market. At the moment, the only Brownie points they have to offer an insurer is a no-claims-discount, but with telematics drivers are given ‘safe driving scores’ which essentially demonstrate the risk involved in insuring them. As Penny says, “Motorists will be able to show their scores to a variety of insurers and say, ‘Look, I’m safe. What can you do for me?’” Already, insurers offering such products are seeing their loss ratios reduce by around 30 percent, so this could be a technology that works in everyone’s favour. “It is still a niche market,” Penny adds. “There are about 150,000 boxes on the roads – a tiny number compared to the industry overall, which deals with around 20 million policies. But it’s definitely a youth market, and I can foresee a time when this kind of policy is standard for young drivers. And if they don’t want it, insurers are going to question why.”