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Can telematics car insurance really save you money?

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04/06/2015
Telematic insurance policies are a relatively recent innovation in the insurance sphere. A black box is fitted to a vehicle to record the driver’s performance. Motorists pay premiums according to how well they drive – or, pay an upfront premium, and are offered rebates proportionate to their record.

Telematics insurance has exploded in popularity in recent years. As the policies are promoted as a means of lowering one’s car insurance bills, and are available to any licensed driver, their increasing prevalence is perhaps unsurprising.

The policy’s marketing is supported by empirical data; the British Insurance Brokers’ Association (BIBA) states that telematics policies can deliver savings of up to 25 per cent to careful drivers.

BIBA also notes that black boxes are proving increasingly attractive for young motorists, who can see their premiums fall by as much as 30 per cent with one year’s no-claim bonus on their record. Again, this shouldn’t surprise; the cost of insurance for young drivers is extremely high, as statistically young drivers are five times more likely to have an accident than their parents and far more likely to be involved in major, high-cost collisions.

Scott Kelly, head of car insurance at Gocompare.com, states that telematics policies not only reward safe drivers, but those who use their vehicles infrequently.

“Black boxes can serve as ‘Pay As You Go’ devices – for a less frequent driver with low annual mileage the telematics box could also help cut the cost of motoring.

Moreover, he believes installing a telematics device in your car is analogous to equipping it with a tracker.

“Quite aside from the savings you make on your premium, a telematic device will tell you exactly where a car is if it’s stolen,” says Kelly.

“Advertising that you have a device on board could even act as a deterrent for potential thieves.”

However, telematics insurance policies are not for everyone. Ian Crowder of the AA notes that drivers who already have a full no-claim bonus are unlikely to reap any benefits from a telematics policy, as they have already proven they drive safely.

“However, they may be able to make small savings if insurance premiums rise industry-wide – and the latest AA Premium Index suggests that premiums are shifting upwards at present,” Crowder notes.

Moreover, by definition, telematics policies penalise poor drivers. Black boxes monitor speed, cornering, acceleration, braking, distance and when journeys take place, to create a risk profile for the driver – and those who score poorly in these categories will be judged to present a higher risk.

“For instance, most telematics policies will penalise those who drive late at night, for instance, as statistically are crashes are more likely to occur between 11pm and 5am,” says Crowder.

This means that drivers who are judged unsafe by their black box could end up paying more than they would with a standard insurance policy, even if they don’t crash.

Conversely, Kelly thinks telematics devices can help motorists improve their driving, noting that most black boxes offer analytics, so drivers can assess how they’re doing.

“They can use their performance stats to become better drivers – and I daresay the psychological element to having one installed in your car, and knowing you’re effectively being spied on and judged whenever you’re on the road, makes you more careful.”

Kelly’s hypothesis is confirmed by BIBA member research, which shows that one in eight new drivers with a telematics policy crash in their first six months on the road, compared to one in five drivers with regular insurance policies.

Judging by their burgeoning incidence, black boxes are evidently here to stay. As of May 2015, there are 323,000 live telematics policies in operation – while that figure only represents about 1 per cent of the UK motorist population, in 2009, by comparison, there were just 12,000 live policies. Telematics devices could penetrate other areas of the insurance market in future, too.

“Telematics is yet to filter through to home insurance, but we’re confident it will within three to five years’ time,” believes Adam Powell of insurance broker Policy Expert.

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