What is telematics insurance?

Insurers are increasingly turning to driver monitoring technology, better known as telematics, to identify safe drivers and reward them with reduced car insurance prices.

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Recent research from Allied Business Intelligence has revealed that Europe – the UK and Italy in particular – is leading the way in the provision of telematics technology, and that 44million Europeans are expected to have ‘black boxes’ fitted in our vehicles by 2017, with 89million similarly equipped worldwide.

Here we take a look at how the system operates, the kind of motorists that stand to benefit and how other countries are using the technology.

How does the ‘black box’ work?

Telematics insurance works by fitting your car with a small device – commonly known as a ‘black box’ – that records speed patterns and distance travelled as well as the type of roads you are using, and when.

The technology can also monitor braking and cornering to build up a picture of your driving style. Insurers then use this data to calculate the cost of your insurance and adjust your premium accordingly, with each aspect having an effect on the price that you pay.

For instance, not only will you be charged for the total number of miles you cover, you will also incur higher policy prices for driving during peak hours, when there is an increased statistical likelihood of an accident occurring.

The insurer will normally charge you an up-front fee, which includes the cost of the device and its installation, and then quote you a price for your annual premium which can decrease or increase month on month, depending upon your driving performance.

While the monitoring of driver behaviour in this way may sound quite Orwellian, it should lead to a fairer pricing system that is based upon the individual rather than a generic set of statistically-based assumptions.

And, above all else, if the use of telematics technology encourages safer and more considerate driving, this should ultimately lead to safer roads for all of us.

Who in the world is using telematics insurance?

As mentioned above, the UK and Italy are leading the way in the provision of telematics insurance, with the Italians having a particularly interesting slant on the use of the technology.

Italian insurers initially used the technology for tracking stolen vehicles but are now increasingly using it to monitor and provide feedback on driver behaviour. The scores are even being shared and compared on social networks; there’s nothing like a bit of healthy competition to spur people on.

Although still a way behind the UK and Italy, Germany has seen a significant development in the implementation of telematics insurance with the country’s second largest motor insurance provider, The Public Insurers, offering the technology in the form of the brilliantly named ‘Mein CoPilot’ (My Co-pilot).

In the US, the technology is slowly growing in popularity, although you’ll be hard pressed to find a major car insurance company offering it in the same way as UK firms.

One US insurer that is offering telematics insurance does so via a rather convoluted system that involves them mailing out a black box for the driver to install in their car for a specific period of time before sending it back, via post, so the insurers can assess the data. Given that drivers have to mail back the black box, there seems to be a little irony in the fact that the company offering this product is called ‘Progressive’.

Another variation on the theme comes via a company based in Texas, which bases its premium prices on distance travelled and requires drivers to send in a digital photo of their car's odometer to show how many miles they have covered.

South African insurers, Discovery, offer incentives including discounted petrol and credit card reward points as part of its telematics insurance package.

The package, called ‘VitalityDrive’, offers a 10% discount on every BP fuel spend and can be increased to 25% if you have your car serviced at a specified garage and even 40% if you buy your  fuel using a DiscoveryCard, something that would definitely go down well with motorists in the UK.

So will the ‘black box’ reduce your premium?

In the UK, telematics insurance is largely aimed at younger drivers who are often hit with the highest car insurance premiums. And considerable savings can be made, as Sean Halpin, 20, found when he switched to a black box policy.

Sean drives an 05-plate Peugeot 106 1.2 and was quoted a renewal price of £2,700 on his annual premium and so decided to see if he could save money by using telematics technology.

He was quoted £1,350 for his first year with telematics specialists InsuretheBox, which included the black box and its installation, and was given a fixed monthly fee based upon him driving no more than 6,000 miles per year.

So using telematics technology instantly halved Sean’s premium, and this year’s renewal was halved again, coming in at just £790 when all other quotes from ‘traditional’ insurers had been above the £2,000 mark.

Sean regularly checks his driving performance via the InsuretheBox website. This gives him a monthly breakdown of his driving technique and, provided he ticks all the safe driver boxes, he is rewarded with extra miles, usually around 50 a month on top of his 6,000.

In addition to saving money, Sean says telematics has made him more aware of his driving technique and, ultimately, a better driver: “I think I’ve become safer with the box installed because I know my actions are being watched and will affect my renewal price. Especially speeding and braking!”

On the Italian model of comparing scores via social networks Sean said: “Comparing stats is possibly a good idea, although ‘I'm a safer driver than you’ won’t generate much in the way of banter.”

Wider appeal of the ‘black box’ approach

It’s not just young drivers that could benefit as any careful driver who doesn’t cover many miles and drives predominantly during off-peak hours could see a reduction in the price of their premium.

Telematics insurance may also be a good option for convicted drivers as, although any convictions will still have a bearing on their policy price, they may be able to bring down the cost of cover by fitting a black box and adjusting their driving style accordingly.

However, if you are a driver that clocks up a lot of miles annually then there’s a good chance that you won’t make any savings by switching to a telematics policy and you may even see the cost of your cover increase.

Regardless of whether or not telematics is right for you, there are a number of ways in which you can cut the cost of your cover, the simplest of which is to use MoneySupermarket’s price comparison tool to compare quotes instantly to find the best insurance package to suit your needs.

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