Telematics Insurance - Big Brother Is Going To Be Watching You

Telematics car insurance is still not very well known and yet it is considered by many industry experts that within the next ten years it will have changed the face of the motor insurance landscape for ever.

How It Works

What is telematics insurance? It is essentially a type of mini computer in your car which tells the insurer all about your movements. It is a small device, the size of a cigarette packet and often a small plain black box - hence the common name for such policies being black box insurance. If you are familiar with sat navs, it is essentially the same thing but without the screen. Just like a sat nav, it sends a signal up onto a satellite but instead of bouncing back to plot your position on a map it simply stores the information on the Insurance company's central database.

Just like the sat nav technology it can plot your position, at any given time, amazingly accurately to five square metres or so. Since the signals are being beamed continuously, the computer can track not just your position but your speed too. This means it can actually calculate your road position, acceleration and braking as well and plot that on a road map, comparing it to the speed restrictions in place.

The Advantages of Telematics Insurance for the Motorist

One of the problems with motor insurance is that drivers tend to get lumped together in groups and labelled. This is fine if it is a 'positive' label such as middle-aged and experienced but annoying and, more to the point, expensive if you are a 'good' driver but bundled into a group which has a poor reputation. For example young drivers (18-21); night club doormen and comedians (who often drive late at night) or previously convicted drivers.

By choosing to have a telematics insurance policy you are immediately suggesting that you are a responsible driver because you are happy for your driving habits to be monitored. This is why black box insurance quotations tend to attract a discount against comparable policies. Direct Line recently stated that discounts of up to 40% can be earned.

Polices vary in how they work but all work on a similar principle in that they reward responsible driving habits. If you know you are a sensible or experienced driver why should you worry if a computer is tracking your movements? Likewise if you are a law abiding citizen do you really care if the computer tracks you to the staff or station car park, or the local supermarket? It may be different if you are a drug dealer or sleazy politician but most people are not.

One thing that also happens is that drivers ensure they drive more correctly because they know someone is watching them. It is a bit like drivers slowing down when they see speed cameras. If the driver is aware that their actions are being monitored they tend to act a little more judiciously which is a benefit to everyone.

An unrelated benefit is that the black box acts like a tracker device and can provide the insurance company and / or police the exact position of your vehicle should it be stolen.

The Disadvantages of Black Box Insurance

The main objection to such polices are that this is Big Brother personified. This means that 'The Man' can see where you are (well at least where your car is) at any given moment. Your privacy is invaded. Consumer action groups rightly protest about privacy concerns, particularly about who can access such personal data but they cannot hold back the proverbial approaching storm.

The other major problem is that should you breach the various driving parameters imposed by the insurer you will be penalised. This may be a simple as breaching a mileage limitation or it could be because the computer has calculated that you are regularly speeding. It is also fair to say the various telematics insurance providers have a different methodology for fines or penalties which can be very confusing when one is trying to compare policies.

Why Do The Motor Underwriters Love This Technology?

The dilemma for insurers is that insurance is based on the old fashioned concept of uberrima fides, or utmost good faith. The problem is that many policy holders are actually 'economical with the truth' when it comes to seeking quotations. Whilst this is clearly a breach of contract, not only will such an omission or error need to be spotted, but it will often result in an animated disagreement with the policyholder should their compensation monies be rejected or reduced in light of the fact.

For the motor underwriters, actually the bigger financial loss comes from the many policies issued that contain misrepresentations which reduced the drivers' premiums but do not come to light because there are no claims. These shortfalls often go undetected and add up to millions of pounds in lost revenue.

Whilst the motorist may consider these as 'little white lies' which are justified in reducing unnecessarily expensive premiums. The underwriters and usually the courts too will see them as misrepresentation and breach of contract. Is this a significant factor? A recent poll of nearly one thousand people by Consumer Intelligence on behalf of Lexis Nexis, found that roughly one quarter of them thought that omissions or adjustments of facts was acceptable behaviour when apply for a motor quote.

For the insurer, the little black box means that they can get a really good understanding of the driving habits of the motorist. It might not be able to tell them if the policyholder is 'fronting' the policy for their teenage son, who is named as an additional driver but it can prove that the car is being driven to a university car park five days a week, miles away from the office block where the policyholder works.

It can also tell where the car is parked. The declaration may state it is safely tucked away in a garage at night but the increasingly sophisticated and accurate satellites can plot the car as being parked on the street. Likewise the applicant might state they only drive 2,000 mile per year but they will quickly be highlighted should they reach that figure within the first three months.

The policyholder might suggest that the car was stolen and torched the night after a hit and run accident but the movements of the car might suggest otherwise.

The telematics insurance provider may impose limited motorway driving, a curfew on driving after twelve o'clock at night or parking in a particularly dodgy part of town. Now there is the proof when transgressions happen.

When a driver has a good record the insurer can reward them with reduced premiums because they are exactly the sort of policyholder they want. Conversely, 'bad' drivers can have their premiums increased and even see their policies cancelled. This transparency is a massive boon for the insurers.

The Future of Car Insurance

Many people in the insurance industry reckon that telematics policies will become the norm in the future, where you may still be able to buy a 'traditional' policy without the black box but you will have to pay more for the privilege. You will be opting out of the new standard way of doing things, rather than voluntarily opting in as is the current situation.

This is a bold statement as only about 1% of current British policies are telematics policies and it is only 3% in Italy which is at the forefront of European countries for this concept; but that is because it is new technology. This technology has been around for over ten years now and has been well and truly tried and tested. The cost of the little back boxes has reduced and may even be replaced by newer equipment or 'apps'. Not only that but the improved results are there to see for all the insurers.

Indeed 2014 has been a watershed with many more motor underwriters offering telematics insurance policies. Undoubtedly there will soon be a greater emphasis on such policies within the marketing and advertising by the providers.

Some commentators even see a future where certain insurers refuse to deal with anyone without a telematics device, a little like the insurers currently refusing to quote for drivers with drink driving records.

Telematics insurance may only be a fledgling concept at the moment but there is every indication that it is going to grow massively in the coming decade and could well become the standard British car insurance operating procedure.

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