How will telematics change car insurance in the next 10 years?
What is telematics insurance?
Telematics insurance, UBI (usage-based insurance), or black box insurance, has now become somewhat commonplace in the UK car insurance market. Telematics boxes extract data from a vehicle and can inform insurers about how a vehicle is driven, where it is being driven and times of use. The devices have the ability to monitor poor driving styles such as harsh acceleration, over-revving, heavy braking. By combining this information, insurers can assess which drivers are the most likely to be involved in an accident.
According to research by the British Insurance Brokers Association (BIBA) earlier this year, the number of telematics insurance policies increased by 40% between December 2014 and December 2015.
Telematics policies are extremely popular amongst younger drivers with leading comparison website, GoCompare, suggesting that 71% of all policies were taken out by motorists under the age of 25, compared with only 3% for over 50’s. As car insurance costs rise for drivers outside of the young driver category, we predict that take-up of telematics will increase for drivers of all age gaps over the next decade.
So how will telematics reshape the car insurance market we know over the next decade?
All premiums will be relative to driving style
Insurers will move from using telematics data to assess the risk of predominantly younger policyholders to collecting data from drivers of all age groups. At present, insurers cannot accurately identify high-risk customers without telematics and seek to provide relative quotes solely by grouping customers by criteria such as age, claims and previous convictions. There are many high-risk drivers who will have never claimed or been convicted of a driving offence and are therefore not paying insurance relative to the level of risk they pose. With telematics, these drivers can easily be identified through poor driving behaviour techniques. On the flip side, insurers will be able to reward low-risk policyholders for safe driving styles.
Insurers will be able to monitor vehicle faults
When calculating insurance quotes, insurers categorise the risk of a vehicle in addition to the risk of the driver. This takes into account the vehicle’s group rating which is given to them by the Association of British Insurers. These ratings take into consideration factors such as the vehicle’s worth, the costs of replacement parts, performance and security. Besides monitoring a vehicle’s movements and the way in which they are being driven, black boxes have the ability to monitor diagnostic trouble codes (DTC’s). This allows insurers to determine whether vehicles are susceptible to breakdowns and if the driver is likely to make a claim.
The claims process will become quick and simple
Currently, in the event of an accident, drivers are required to inform insurers, however, this isn’t always the case in reality. If the collision is serious enough to mean a driver has no choice as to inform insurers, traditional claims processes have been long and laborious. In a serious collision, policyholders can usually be stressed, frightened and upset which means it can usually be difficult when obtaining information of the accident’s circumstances. With telematics, insurers will be able to obtain all of the relevant data that surrounds the claim. Insurers can also use crash data to make the first step in contacting a policyholder to check on their wellbeing and if necessary, alert emergency services. The insurer can also make instant progress in the claims management process.
It is important to point out that insurers are not looking to ‘spy’ on their policyholders and are currently using telematics to offer dramatic savings to their customers and improve the service offered to them. For example, Direct Line’s DrivePlus policy can save a driver up to 40% on their annual premium. Customers are already realising the benefits available to them from telematics insurance and as these benefits increase, so will the market’s confidence.
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