It is time for telematics car insurance?

Telematics - or 'black box' - insurance is mushrooming into a major part of the car insurance market.

13:20 14 March 2013

These policies use satellite technology to monitor and analyse the driving behaviour of the motorist. At the moment there are still only around 380,000 cars on the road fitted with a telematics device, which means that fewer than 1% of car insurance policies use telematics. But uptake estimates range from between 10% and 80% by 2027.

 

We're witnessing significant changes first hand. In the past two years there has been a doubling in the number of cars fitted with a 'black box', while the MoneySupermarket number-crunchers reported that 15% of all the car insurance quotes we now generate are for telematics policies.

 

These numbers could increase even further by the end of the year if, as expected, telematics technology is rolled out more widely via smartphone apps. But is telematics actually suitable for the mass market? Let's take a look...

 

What is telematics?

 

First of all, a quick recap: telematics insurance works by fitting cars with a small 'black box' device that is used to assess driving style and adjust insurance accordingly.

 

If you take the technology on board then the device will work out your driving style by taking into account the speeds at which you drive, how you accelerate, brake and take corners, as well as the type of roads you use and at what times of day and night you use them.

 

An online portal will then give you access to your driver data so you can see how you performed in each category so that you can adjust your driving style if necessary. If you perform well in each category you should see a reduction in the size of your premium, with some insurers offering a drop in price after just a few months.

 

All of which sounds like a no-brainer for the more considerate drivers among us - so why is it only just starting to grow in popularity?
 
The fall and rise of telematics

 

Telematics insurance was first offered to UK motorists during the mid-00s but its days looked numbered when Norwich Union finally pulled the plug on its service in 2007 due to a lower than expected take-up.

 

Many commentators concluded that telematics was effectively dead in the water at this point. But Mike Brockman disagreed and, in 2009, set up specialist firm InsureTheBox to focus on telematics cover. This business is now a leading player in the telematics insurance market and has opened the gates for more telematics products to enter the market, such as those offered by AA, Bell by Admiral, Co-op and Coverbox.

 

The main aim of telematics is to provide a fairer insurance pricing structure for motorists, based predominantly on their driving style as opposed to a set of assumptions based on the driver's age, location, driving experience and type of car.

 

But insurers also hope it will improve customer relations as policyholders will be more likely to interact with them on a weekly basis instead of just once a year at renewal time.

 

Co-operative says 60% of its telematics insurance customers log on to assess their performance three times a week.

 

And when the smartphone technology takes off, there is the potential for even greater interaction via a competition element that will see drivers rewarded for good performance.

 

Additionally, because telematics technology relays the details of any accidents directly to insurers, it can also be used to weed out fraudulent claims, which in turn should lower premium prices even further. The data can also be used to work out the sequence of events before an accident occurred.

 

With so many positives, why is there not a greater demand for telematics, and why is it only really marketed towards younger drivers. The truth is that it's just not suitable for everyone, and here's why...

 

The trouble with telematics

 

One of the tried and trusted ways to cut the cost of insurance cover is to cut the number of miles you drive annually - the rationale being that the less time you spend on the road, the less likely you are to be involved an accident.

 

Telematics works on much the same premise, but differs slightly in that most policies will set a limit of between 6,000 and 8,000 miles. If you exceed this limit then you'll have to pay for the extra mileage. There is at least one exception to this rule though as Drive Like a Girl offers unlimited mileage, but you will still be charged a higher premium the more miles you cover, as per a standard policy.

 

The type of roads you drive on are also taken into account, so you could find you're charged a higher premium if you do a lot of motorway driving or drive on some of the faster single and dual carriageways that are considered to be dangerous.
 
So, a telematics policy may not be for you if you have to commute a long distance to work or do a lot of motorway driving.

 

Telematics may also be unsuitable for anyone who drives during peak hours or at night, as both are considered times when there is a greater risk of being involved in an accident and your driver score and premium will be adjusted accordingly.

 

There is also a general concern about switching from one telematics provider to another, and whether extra costs will be incurred to have your old insurer uninstall its kit before your new insurer attaches its version. Again, the advent of telematics apps for use on mobile devices might alleviate this problem.
 
For now, though, the appeal of telematics is on the increase, particularly among young drivers who can make significant savings, but there are still some barriers that need to be overcome before it enters the mainstream insurance industry.

 

So, for most of us, now isn't quite the right time for telematics - if you want to save on car insurance then take note of our money saving tips when shopping around for cover.

 

Please note: Any rates or deals mentioned in this article were available at the time of writing.