Is telematics the future of car insurance?
While many younger drivers have been using so-called black box car insurance, telematics has yet to become mainstream. The FT's Oliver Ralph test drives a telematics system to see how it affects his driving, and whether it could be the future of car insurance.
Produced by Vanessa Kortekaas. Filmed by Petros Gioumpasis.
In the UK, the cost of car insurance has been rocketing. The price of an average car insurance policy has soared by almost 20% in the past year to nearly 850 pounds annually, by some estimates. For the past decade or so, younger drivers have been cutting costs by using so-called black box insurance. Or to give it its technical name, telematics insurance. There are about 850,000 cars in the UK using the system. So could this be the future of car insurance?
This is the kind of black box that's used to gather data about how you drive. If you sign up, the insurer instals one of them in your car, underneath the bonnet. It then measures how well you drive. How fast you're going, for example, or how suddenly you brake. If you drive well enough, you could get a discount on your insurance. Sounds simple, right? Well, let's give it a try.
So it's quite an odd sensation, driving with this box in the car. The car itself doesn't feel any different at all, but I'm aware it's there. Feels like I'm driving with a test examiner sitting next to me in the car.
As I'm driving, the box is measuring basic things, like how fast I'm driving. It measures how fast I accelerate, how suddenly I brake. It measures how well I corner. Increasingly, it's been used for fraud prevention, so that the insurance companies know if an accident happens as it's claimed to have happened. Another very important reason is accident detection. Some companies will send the police to check out that the driver is OK.
Well, we've given it a go. I think I was driving fairly cautiously, but maybe that's just because it was my first time trying out the system. But I'm keen to hear what the experts think.
Back at the FT, I spoke to Octo Telematics, who analysed the data from my driving, and to the car insurer LV about how that data would affect my annual insurance costs.
Well, Oliver, the great news is that you've got a very good driving score. You've achieved a 98% driving score. In essence, what we're looking at is speeding, braking, cornering, in the context of the road type and condition. We can see you drove 76 miles over two days and had two events. Now, we know and we're able to overlay the speed limits for those different types of roads. But we can see here some green in some urban areas, some lower speed limits in city-type areas. And then faster speeds on motorways-- the M1 and the M25. And this also allows us to understand the speed that you were doing for your two events, which were as you were coming out of a faster speed limit area into a lower speed limit area.
So Michael, what does this all do to my insurance policy?
If you had taken a standard, non-telematics insurance product out with ourselves through one of our insurance brokers, you have paid-- based on the fact you've got no NCD, you would have paid something like 1,700 pound for your insurance premium.
OK, so no no-claims discount. So it's that price.
That's right. Now that fact that you've opted for a telematics product, you would have initially saved 475 pounds straightaway. So we're working on the basis that--
That's just for putting the box in there.
That's just for putting it in. We welcome the fact that you're prepared to do that. So there's a big initial discount up front. And your driving score really was excellent, so we were very pleased with that. And after three months, you'd have got a refund of 90 pounds. That's 90 pounds back in your pocket. The next three months, if you continue that excellent driving, there would be a further 60 pounds. And the final quarter would have been another 40 pounds back. So over the course of the year, you would have saved in excess of 650 pounds off your insurance premium. We want to have people the chance to smooth their driving over perhaps three months. So once a quarter, that's when we apply the discounts to the premium.
There is clearly an opportunity to save money using telematics, but the size of the discount depends on the policy and the driver. So far, telematics has only been popular among younger drivers.
In terms of volume, we're looking at 850,000 people today in the UK with an active device in their vehicle or an active policy based on telematics in their vehicle. But yes, it is still a niche and it's still pretty much focused on young driver. The reason is very simple. I mean, it's, for them, very difficult sometimes to find insurance. So telematics is a means for them to get insured first and also to get a discount.
Generally, we think that there's only about 40% of the overall population that will ever consider actually having a device, whether it's an app or an actual, physical device in their vehicle. However, the market is growing very fast. And in other the countries than the UK, other segments have been targeted-- successfully targeted.
The idea of being constantly monitored while you drive might not be for everyone. But with insurance prices rising, more people might opt in. Oliver Ralph, Financial Times, London.