Can telematics help lower your car insurance premiums?
From cutting-edge smartphones that let you surf the web, watch movies, check the news and keep in touch with friends and family to iPads and smartwatches, we're relying ever more on technology to make everyday tasks easier and to make smarter choices.
This technology is changing the world of insurance too. Telematics is becoming an increasingly common option for drivers, particularly younger ones, who might find it impossible to afford cover otherwise.
Insuring a car can be an expensive business. According to recently released data from the AA, the premium for typical annual comprehensive cover over the first three months of 2015 was £530.47. And while this represents an annual drop of 5.8% in prices, managing director of AA insurance Janet Connor warns that it is likely prices will rise over the course of the year.
"We're starting to see insurers quoting higher prices and I think that is the beginning of a trend but the market remains very competitive," she says.
Furthermore, the figures paint a rather bleaker picture for young drivers. The average quote for comprehensive cover for those aged between 17 and 22 in the first quarter was more than double the national average at an eye-watering £1,207.61 - and even that represents a 6.4% drop compared to the same period in 2014 when the average premium was £1,289.56.
With such a high price to pay, especially for new drivers, it's little wonder then that people are looking for new ways to lower their insurance premiums.
What is telematics?
Telematics works on the simple and fair principle of the safer you drive, the lower your premium will be. A small device – the 'black box' – is fitted to your vehicle and records how you drive, allowing your insurer to build up a comprehensive picture of your driving habits.
Factors such as speed, mileage, the time of day and night you drive, and your braking pattern are taken into account.
This detailed information enables the insurer to distinguish the driver's risk potential and to reward those who obey the rules of the road. Safer drivers' premiums may vary monthly according to their telematics driving record, or they'll be offered a substantial discount when it comes to renewing an annual policy.
Some insurers and telematics providers now give customers the chance to look at their own data with apps that can be downloaded to a smartphone, giving them clear information and feedback about their driving habits and what they can improve on.
Dan Robinson, head of motoring at insurer More Th>n, says that telematics can work in favour of both the insurer and the driver.
"Whether we like it or not, younger drivers do tend to crash more," he says. "Telematics is about getting to where you can charge people the right cost for them, rewarding them for their driving and encouraging them to drive sensibly.
"People don't like the idea of paying for other people's bad driving. We have been really happy with how people have reacted to it and how they have changed their driving style."
Robinson says that the technology is very much focused on young drivers under 25 at the moment but thinks eventually it will become standard for all motorists as drivers become familiar with its benefits and the technology improves.
"The cost of the technology will reduce, which means insurers will be able to fit black boxes more cheaply," he says.
Driving a bargain
Product innovation is all well and good but without the ability to make a real difference to your premium telematics would be pretty pointless. So can 'pay as you drive' really save you a packet?
More Th>n says young drivers can save up to £440 a year with its Sm>rt Wheels policy and earn cash rewards if they drive safely over the year, while the renewal price the customer pays will also reflect their 'driving score'.
I looked into what I would have to pay for my own insurance. Looking at Admiral and its LittleBox policy, it offered me (a 29-year-old living in London with a one-year no-claims bonus on a 2013 Peugeot 107 and my partner named as a second driver) comprehensive cover for a one-off payment of £780 or, if paying monthly, £83 a month, which equates to £999 over the course of a year.
Without telematics, Admiral offered me a one-off price of £819 or 12 payments of around £100, totalling £1,199. So that's £39 more for the upfront payment method but £200 more compared to the monthly black box option. Seeing as the finances of younger drivers are often a little stretched, which makes them more likely to pay monthly, there are clearly substantial savings to make with the black box option.
And when you consider that LittleBox, unlike some other data-driven policies, doesn't come with any monthly mileage restrictions and you will be offered up to a sizeable 25% discount when it comes to renew your policy if you drive safely over the 12-month term, then the benefits are even more obvious.
Hannah Hewitt is a 19-year-old driver who has her insurance with telematics insurer Ingenie, which provides cover for 17- to 25-year-olds.
When you take a policy with Ingenie, the company reviews the price of a customer's insurance three times during the year based on their driving score.
Hannah was offered a starting quote of £2,163.85 with Ingenie but, thanks to her good driving, she was able to secure savings of £385 over the policy period. When she came to renew, she was given a price of £934 - a saving of £1,229.15 when compared to her first quote.
"My initial saving on the quote given to me was approximately £1,000," she says. "Being in a high-risk postal area, this was amazing. I thought I wouldn't be able to drive for a few years after passing my test as the insurance cost would be too high.
She says black-box technology has helped improve her driving, too. "The two areas I have improved are braking and cornering. Being on the road for a year and a half now, I can automatically sense when I have had to brake a bit too hard or taken a corner too quickly and
I automatically say to myself 'think what that would have done to your feedback'.
"The biggest thing I have taken from having a black box installed is my awareness. I am aware that everything I do wrong while driving could have serious consequences, not only for my quote but also on the road."
Is it worth it?
While telematics may sound like a no-brainer if you are thinking of heading down this particular insurance road, there are a couple of things to consider.
Some polices will restrict when and where you can drive and how many miles you can do. These limits may be suitable for a younger driver but if you use your car a lot – because of work or you have a family - then it might not be the best option for you.
And if you are an experienced driver and have built up a substantial block of no-claims bonuses, then the savings you could potentially make on choosing a telematics policy could be negligible.
While many of us think we are the best driver on the road, if your driving style is judged to be at all dangerous then telematics won't be for you as you'd be unlikely to save money when compared to a normal policy – as your premium can go up as well as down.
It's worth doing your research before signing up to a telematics policy. But provided you are a low-risk driver and happy to comply with whatever restrictions the insurer insists upon, then telematics could help you drive down the cost of your premium for good.
What next for telematics?
Telematics isn't just for cars – it's set to become influential in the home insurance world too, says Adam Powell, head of operations at insurer Policy Expert. He predicts that it will start to have an impact on the home insurance market within the next "three to five years", as insurers and customers look for more individually tailored polices that accurately reflect their needs.
"There are two reasons for this. Firstly, systems such as NEST, which allow you to control devices in your home remotely, like your heating or lights, have the potential to be developed into the telematics box for homes of the future.
"Secondly, there is a typical adoption curve for new innovations when they enter the market, and we are already approaching a peak of early adopters starting to take interest in these technologies.This means it's likely these innovations will soon become mainstream with their use broadened to include home security."
However, not everyone is impressed by insurers' take-up of the technology. Iain MacSween of Blackboxinsurancereviews.com says many car insurers have been too slow in promoting telematics policies to their customers, leaving them paying more for traditional cover and putting lives at risk.
"A couple of years ago, things were looking positive and it seemed that the telematics explosion was imminent as provider after provider came into the market," he says. "Since then things have taken a downturn, with very little apart from the Aviva Drive and Direct Line DrivePlus apps being advertised and promoted. No other companies seem too bothered about actively promoting their products and are adopting a 'let's wait and see' attitude.
"In focusing on their return on investment, they are failing to grasp the bigger picture - over 1 million people die and up to 40 million are injured in road accidents every year.They fail to understand that if they actively collaborate in standardising, promoting and creating a global desire for this form of insurance, they can dramatically reduce these figures."