The time for telematics is now – but the industry must agree on education

The use of telematics – where a black box device is installed into a motor vehicle to track driver behaviour and ultimately influence the cost of that driver’s insurance premium – has been increasing in the UK in line with technological advancements.

This includes, for example, the use of apps or connecting to a car’s own inbuilt system to monitor driver behaviour, rather than having to use a physical, separate device.

The idea behind this model is that drivers who are proven to be safer on the roads – therefore posing less of a claims risk – will be rewarded with lower premiums.

According to a survey published by carbon neutral underwriter The Green Insurer in February 2024, 81% of UK car drivers are now aware of telematics-based insurance, demonstrating that the appetite for these products is tangibly increasing.

And while just 8% of the drivers surveyed currently use telematics devices, 35% of respondents said that they are quite likely or very likely to consider a telematics policy at their next insurance renewal.

This figure rises significantly to 61% for drivers aged between 18 and 24.

Statistics such as these have experts predicting that the time is now right for the wider adoption of telematics – especially as technological advancements continue to open new doors for this model and rising premiums for young or new drivers cause motorists to look at less traditional cover options.

Mike Brockman, founder and chief executive at telematics firm ThingCo, told Insurance Times: “Telematics has been a long and painful journey. A leading insurer looked to use it in 2005, but [it] discontinued [the product] within three years. The data was lacking and the technology was expensive.

“We now have the capability to use [telematics] data to better understand young drivers and make them better and safer drivers.

“We have seen the use of telematics gravitate towards younger drivers due to the rising costs of insurance for that group [of] drivers. However, the benefits are far wider [than just supporting this demographic].”

Brockman added that as the need for telematics policies to go hand in hand with a black box installation reduces, this creates opportunities for insurers to access huge amounts of data on drivers – regardless of their age or experience.

“I am confident it will take off. It is all about timing,” he explained. “Now is the time. With premiums increasing in recent years, the industry needs to manage this technology and – with a move to the cloud – the costs of [telematics] technology [is] becoming significantly lower. This is coupled with increased data security and [a greater] ability to process and analyse data.

“We believe that at a time when insurers are still fighting to make a profit, [telematics] technology can help to reduce loss ratios by encouraging safer driving habits.”

Debunking misconceptions

Sam White, founder and chief executive at pro-women car insurance provider Stella Insurance, said the UK could learn a thing or two about implementing telematic systems successfully from other countries.

“It will only work with adoption at scale,” she explained. “A great case study is the Italian market, where the government made the use of telematics mandatory.

“There was a clear regional difference in driving habits and, with it, claims in certain areas of Italy – the costs of which were being spread across the country. The use of telematics has provided the data to allow more accurate pricing for drivers.”

For White, the UK insurance industry still needs “to educate drivers on the benefits [of telematic policies] and debunk some of the myths which are proving to be a barrier to adoption”.

She continued: “There is a feeling of ‘Big Brother’ and questions [around whether] there are poor driving habits, [if] the information will be shared with the police.

“The average driver will always exceed the speed limit at some point and they worry [that] if they do, it will hit their premiums.

“We have to remember a lot of drivers are better than their circumstances. They are currently priced on a range of metrics – such as postcode, for example – while telematics creates the ability to be priced on the risks you actually represent when behind the wheel.”

White comments align with further findings from the aforementioned research from The Green Insurer.

Discussing the barriers to telematics adoption, 29% of respondents wanted reassurance that their driving data would be secure, while 20% said they needed proof that a telematics policy would be better for the environment compared with a standard insurance policy.

More than half (59%) stated they would only take up a telematics policy if they saw substantially lower premiums.

Future of telematics

White urged the insurance market to come together and put the record straight around telematic policies, highlighting the benefits of such products to potential customers.

She said: “When it comes to education, we need to do that collectively rather than on an individual basis. It will reduce a lot of friction in the process.”

Stella Insurance signed a deal two months ago with a car leasing company, allowing the insurer to access the in-car data on a range of leading models. This will enable the insurer to offer telematics products.

White continued: “The ability to access the data without the use of a box is a significant step forward, but there has to be an alignment of pricing, education and data analysis.”

Matthew Washer, head of retail specialty trading at Aviva, told Insurance Times that the key factor determining telematics’ success was the ability to deliver products customers want.

He explained: “We believe that offering customers choice, so they can choose the right product and customer service options that are right for them, is crucial to overcoming barriers to the adoption of telematics.

“Although telematics policies are well established in the young driver insurance market, advances in technology means they are becoming increasingly appealing across all demographics.

“Aviva MyDrive, for example, monitors driving behaviour using a smart phone, helping motorists to improve their driving and potentially save money at renewal.

“The more safely the person drives, the more they could save on their motor insurance when they come to renew their policy.”