Telematics has definitively moved from the future of insurance to its present, with almost half a million drivers in the UK now using a black box or app to monitor their driving. Luke Holloway examines the growth to date and future prospects.
For many years, telematics has been hailed by some as a revolution in the motor insurance sector. But how has it evolved since it was launched and has it reached the lofty penetration levels the market anticipated?
For a long time prior to telematics, the motor sector had not seen any significant changes to its portfolio until, with the use of GPS technology and a little gadget commonly known as a 'black box', insurers were suddenly able to track your vehicle's movements through a device fitted inside your car, sending them data to measure how well you are driving.
The device evaluates aspects such as location, how long you have been driving for, how rapid accelerations are, how harsh or smooth your braking is and even your cornering. Insurers are then able to base their premiums on how safe and conscientious a driver you are, instead of you paying for insurance based on the average driver.
In the UK, reaction to the technology has been largely positive, especially among young drivers. Figures have revealed a 40% surge in the take-up of the new policies in the past year, with almost 455,000 people now using the technology to monitor their driving skills. Of these, 71% have been taken out by motorists under the age of 25, compared with only 3% for over-50s. The British Insurance Brokers' Association (BIBA), which collected the data, says these policies have resulted in savings of more than £1,000 for some young drivers.
Graeme Trudgill, executive director at the British Insurance Brokers' Association (BIBA), says: "Telematics is becoming the motor insurance solution of choice among young drivers, as they can take control of their own premiums by electing to have their driving behaviour monitored. Industry statistics show there is a 40% drop in crash risk when a new driver has a telematics policy. Telematics equipment also helps reduce theft claims, with many doubling as vehicle tracker devices."
In addition, price comparison website Gocompare.com -- which estimates the average saving at a slightly lower £740 -- reported a 155% increase in the number of telematics insurance policies bought between September 2014 and August 2015. Some experts predict that by 2020, one in four motor policies will be telematics-based.
One individual to benefit from using a telematics box is Amy Cowell, 24, from Lancashire. She has been driving since she was 19 and has been involved in two accidents, so when her renewal came in at more than £2,000 she downloaded the Aviva Drive app to her smartphone. When she scored 8.2 out of a possible 10, it resulted in a cheaper insurance quote, saving her £400. Miss Cowell says: "The fact that everything was being monitored and that my phone, which was sat in a phoneholder [in the car], could tell how I was driving, was scary. At the same time I was relieved, too, because it made me think about what I was doing and made me a lot slower and more steady."
Problems at renewal
However, savings are not guaranteed for every user and one of the major issues for the telematics industry has been renewals. Bibin Kudilil, a mechanical engineering student from the University of Belfast, hoped to take advantage of the new technology by having a box fitted for a six-month trial period, which ended last year. Mr Kudilil, who describes himself as a safe driver, was disappointed when not only did he did not see a reduction of his premiums, he also did not receive any feedback on his driving. He says he would "never go back" to using a black box-style insurance policy, adding: "I'm over 21, so next year my insurance should be quite low and a black box will no longer matter to me. My insurance was getting lower every year. This year I have been charged £900, which is down from £1,400 [previously]."
Market research agency Consumer Intelligence agrees with Mr Kudilil's views: "Telematics is great for the initial year of driving, but once you've got a year's driving record you're going to be able to get cheaper insurance in the second year anyway. The number of people who renew in the second and third year is a fraction of what it is in the rest of the market."
It appears that as young drivers become older and begin to build up their no-claims bonus, they may be better off without a black box and return to the traditional method of gathering renewal quotes. It is also worth remembering that in some cases, it may not be the young person's choice to have the device fitted at all but, rather, their parent's idea. Telematics could be seen by some as the perfect way to keep track of where their son or daughter is going and how safely they are driving while they get there.
Worrying new figures recently published by price comparison site Gocompare.com reveal that 17% of parents are potentially guilty of the illegal practice known as 'fronting', which is when parents insure a car in their own name in a bid to reduce costs. The savings that telematics can potentially provide could most certainly be viewed as an alternative to this practice, which may seem a harmless act by well-meaning parents but can be classed as fraud, and can mean serious financial and legal consequences in the long run.
Beyond the pricing
However, telematics is no longer just about helping customers make a saving on their premium. As the technology has continued to be developed, it has also begun assisting insurance companies with weeding out fraudulent claims. Jonathan Hewett of Octo Telematics, which supplies the data and analysis that comes from black boxes, says it gives insurers a complete understanding of a crash -- even if only one vehicle involved has the technology: "Telematics provides a much deeper set of data. You can understand the force of the impact and thus, the likelihood of things like whiplash and soft tissue injury."
As there are now about 12 million such policies globally, with the biggest markets being the US and the UK, and with claims accounting for around 80% of insurers' costs, being able to examine them forensically to determine liability -- and whether drivers are making fraudulent claims -- is crucial to the bottom line.
Another benefit of telematics is that insurers are made aware of a crash as soon as it happens and if the device detects g-force above a certain level, it automatically triggers a call to check if the driver and any passengers are unharmed, and can even alert emergency services if required.
The European Union says this will significantly reduce response times to crashes and could save hundreds of lives a year. Allowing insurers to contact drivers faster following accidents will help stop "ambulance-chasing lawyers" from getting involved, according to Mr Hewett. That gives them more control over the claims process, provides a better service to customers and minimises costs. "It is as much about process efficiency as it is about financial efficiency," he says.
So what of the future? Wunelli, a global telematics leader that has to date launched 17 motor insurance apps in countries such as the UK, China, the US, South Africa and Brazil, has this month announced 'Driver Signature' technology, in an attempt to take telematics to the next stage of growth.
Having accumulated billions of miles of driving behaviour data and hundreds of thousands of related claims, Wunelli has developed new analytics software for smartphones, which works after just 200 miles of journeys captured and without the need for confirmation from the policyholder that they were at the wheel. Driver Signature tackles the risk of fraud, using machine learning to identify when a policyholder is driving rather than in the passenger seat of a vehicle, in a taxi or on a bus, with a 15% improvement in accuracy compared to the rules-based approach commonly used. After collecting a certain number of trips to meet the minimum driving distance, a set of driving pattern attributes are developed and a Driver Signature analytics model applied to classify the journeys as either a driver trip or a passenger trip. There is no customer interaction needed during this process.
Paul Stacy, founding director of Wunelli, says: "When, where and how motorists drive is entirely individual to them and we call this unique identifier Driver Signature analytics. This key fact has been central to the development of telematics-based insurance and, in particular, to smartphone telematics apps as a more cost-effective alternative to fixed black boxes. The advances we have made in Driver Signature analytics represent a significant step forward for telematics apps."
But while companies such as Wunelli are striving to take the next technological step, the success of telematics insurance remains varied around the world, with some countries more convinced of the benefits the software can offer than others. The US is certainly one region where consumers and insurance companies alike seem to be embracing telematics, with Ernst & Young predicting that 88% of all new cars will feature embedded telematics by 2025, amounting to 16 million new cars in the US.
In addition, Toyota has this month announced the launch of a new telematics car insurance services company in the US. The jointly owned Toyota Insurance Management Solutions (TIMS) will support the development of telematics car insurance services for Toyota customers and contribute to the development of insurance offerings that benefit consumers -- including so-called 'pay how you drive' insurance. It also plans to conduct analysis of Big Data and conduct relevant marketing and promotion of the new services to help offer broader insurance options to users.
Yet, in South Africa it is reported that telematics insurance is still very much a niche, representing only around 2.5% of the South African retail vehicle insurance market. Many customers there are still under the impression the devices are bulky, expensive and difficult to install, limiting their viability to usage in the commercial insurance market.
Back in the UK, however, as in an increasing number of countries, telematics is alive and very much in growth. Car manufacturers in Britain are already beginning to install new models with the next wave of on-board diagnostic tools, which negates the need to install any actual device at all. And with the technology becoming ever more advanced, development becoming more cost-effective and an increasing number of consumers embracing motor telematics, having a black box or driving app with you in the car may soon be as common as carrying a spare tire.