Usage of telematics is growing quickly in the UK, targeting young drivers and addressing some of the issues created by the new EU gender directive.
What is telematics insurance?
Telematics insurance requires the installation of a device on the vehicle, commonly called a “Black Box”. This device communicates with on board instruments to monitor a series of parameters like hours of the day when the vehicle is driven, the distance driven, they type of roads where the car is driven and the speed of the vehicle during the journey.
Furthermore it can control more subjective aspects of the driving style, such as the accuracy of steering and the steering angles, as well as the ability to avoid sudden accelerations or decelerations.
In case of an accident the “Black Box” can also register crucial data about the car in the accident such as direction, speed, vehicle position and collision angle.
Re-launching telematics insurance in UK
Telematics is anything but new from a technical point of view – Progressive Auto Insurance in the USA and Norwich Union in the UK commercially implemented telematics back in the early 2000’s.
At that time the installation cost of the device and its complexity limited the success of telematics and it was only marketed as a niche product targeting very low mileage users. Marketing focused only on two aspects: recording total mileage and collecting key data in case of an accident (similar to the function that black boxes have on airplanes).
The introduction of smartphone technology combined with an easier & cheaper installation process have enabled a re-launch of telematics insurance starting from 2010, with a completely different target segment: young drivers.
Benefits of Telematics Insurance
In the UK, young drivers have been paying very high and unsustainable insurance premiums for many years, because time series clearly demonstrate that the risk profile for a young and unskilled driver is significantly higher than the average:
- One out of five drivers has an accident in the first year driving
- 26% on the road accident involve at least one driver aged between 17 and 24
- The majority of accidents that take place on Fridays and Saturdays involve at least a young driver.
Not only the chance to have an accident is higher but also the severity of the accident itself; 79 young drivers died in 2009, 770 suffered major injuries and 9,500 suffered minor injuries.
Therefore the most relevant benefit of using a telematics insurance (especially for young drivers) is that the insurance premium is lower for those drivers that are more skilled or prudent than their peers, as they have lower probabilities to be involved into an accident.
In the UK market there is some statistical evidence that telematics reduces the claims frequency of young drivers: back in 2005, Norwich published evidence that drivers between 18 and 23 (driving vehicles equipped with a telematics device) had a 20% lower chance of being involved in an accident than the average young driver.
Making telematics more accessible and cost effective: Mobile Apps and OBD Dongles as an alternative to the Black Box
In order to decrease insurance cost for consumers, Wunelli, a UK telematics solutions provider, has developed SoteriaDrive, which uses a smartphone app to eliminate the need for an expensive installation of the black box onto the vehicle.
According to Wunelli, who developed the technology, the app has 99% accuracy compared to the black box permanently installed on the vehicle, considering, after about 300km from the beginning of use, it is able to provide a customer driving profile, based on commonly driven routes, driving styles and speed verified and validated using GPS technology. The App is also able to understand if the customer is travelling by train (and not by car), if is not the policyholder driving the car or if the customer forgot to activate the App at the beginning of the route and it is able to give alerts.
SoteriaDrive was created as a result of Wunelli experience during the past 4 years and from over over 50,000 apps downloaded. Furthermore, on the basis of 26,000 installations and the data of 441 millions miles driven, Wunelli developed a scoring system (called Driving DNA™ Score) that range from 0 to 100, where 100 represent an extremely safe way of driving. These algorithms considers different factors like: amount of night hours driven, speed, driving in high traffic areas, driving fluidity (harsh speed ups and slowing downs), number of travels of small and very small range.
In order to reduce black box installation costs, but without giving up on its benefits in terms of accuracy and quantity of data collected, Wunelli can also offer an intermediate solution between the App and the permanent Black Box device installed on the vehicle. There is the chance to use a dongle on the Onboard diagnotics , or OBD, car socket. This sensor connects automatically with the smartphone with the App installed via Bluetooth, eliminating the black box cost and the need for a separate SIM card.
This sensor is able to record data even if the smartphone is not inside the vehicle and to send it to the provider (Wunelli) via smartphone during the next connection.
The role of telematics to determine the risk profile and premium.
The latest generation of “Black box” records and transmits a broader set of information to the Insurance Company. This data included total distance travelled, speed of the car, the date and time when the vehicle was driven (this allows to control if the car is driven mainly at night and during the week end), the number of stops during a long journey, the number of miles driven per journey ,the mix of journeys (in town, out of town, motorway) as well as the number of journeys.
In addition, the monitoring system is constantly in place during the policy term: driver skills are monitored constantly and the premium is readjusted / recalculated frequently (every three months or even monthly for some Insurance Companies). The premium readjustment feeds the virtuous circle “safe driving = premium discount” or vice versa “dangerous driving = premium increase or, in some instances, policy cancellation”.
Therefore, if one quarter of the drivers suffers an increase in premium because of his deteriorating driving style, he/she has the chance to improve his/her driving style to obtain a reduction in the next quarter.
Thanks to telematics, young responsible drivers will pay a more reasonable price, rather than being evaluated for the age segment they belong to.
According to the European Union Gender Directive, being implemented from December 2012, Insurance Companies cannot consider policyholder gender when determining their premium. For this reason telematics constitutes a viable alternative for Insurers to achieve an even more accurate customer segmentation, enabling them to identify the most responsible young drivers independently from their gender.
The role of telematics in the road safety education of young drivers.
In addition, in order to further foster the virtuous circle, UK Insurance Companies also make the data on driving style (collected by the “black box” and used for pricing) also available to the young insured via an on-line portal. This portal allows them to monitor their own driving performance over time.
From a marketing and communications point of view, in the UK the message of risk prevention has been heavily emphasized to both the young drivers and their parents (in particular, parents can access the portal to check when and how the car was driven and therefore monitor their children driving style).
Who are the key players in the UK telematics market? Which are the main countries where telematics is applied?
At present, telematics insurance is a niche market with a few specialized players (Insurethebox , Ingenie, Coverbox and iKube) and a few more traditional companies (Co-operative Insurance, AA and Hastings Direct).
Insurethebox, set up in May 2010, is the market leader on the telematics market. Their insurance policies are underwritten by Catlin Insurance, one of the main players of Lloyd’s market in London, while the technology is supplied by an Italian company, Octo Telematics.
There are currently around 450,000 telematics policies in force in the UK and their number has nearly doubled over the course of the last 12 months.
Italy remains the largest market for telematics in Europe with over 2 million policies in force and 800,000 new policies sold in 2013 alone, with Unipol Group as the largest provider.
In the US telematics is also making significant inroads and Progressive insurance now has more than 1 million policyholders using telematics.