The little black box that could help fight soaring car insurance costs

Insurers are turning to telematics to reduce premiums and encourage people to drive more safely. Matthew Wall explains.

As the OFT announced on Thursday an investigation into soaring car insurance premiums - 30 per cent higher across the board over the last year, according to the AA - evidence suggests motorists are embracing new technology as a way to cut the cost of cover.

Telematics uses an in-car box that records and analyses our driving styles and provides information that can be used to personalise premiums. Several insurers are introducing telematics to encourage younger drivers in particular to drive less aggressively and earn reduced premiums as a result. The logic is simple: careful drivers make better insurance risks. But the technology has come down in price so much that a mass-market rollout is getting closer, with devotees claiming it can reduce insurance premiums, lower driving costs and improve driver safety.

For example, Insurethebox, an online telematics-based insurer which launched last year, says two-thirds of its policyholders who received renewal notices in July and August were offered reductions in their premiums as a result of using the technology. Some of the savings topped £800, it says, with average reductions of 22 per cent (see case study).

With the firm, customers buy 6,000 miles of cover to start and a "ClearBox" gadget - about the size of a smartphone - is installed behind the dashboard. This monitors their driving and assesses their performance by different criteria, such as the time of day travelled, distance, speed, acceleration and braking, not to mention accidents. Drivers can earn up to 100 bonus miles per month if their driving profile puts them in a low-risk category.

For example, if you tend to make only a few journeys outside rush-hour, drive slowly and don't have a heavy right foot, you're likely to win bonus miles. On the other hand, if you drive a lot at night you're unlikely to win bonus miles as more accidents tend to happen then. Similarly, if you're a highrevving speed demon who routinely burns off from traffic lights, no bonus miles for you.

The GPS-enabled box wirelessly transmits the recorded data to central servers, which policyholders can then check online via personalised web pages, receiving advice on how they can improve and earn more bonus miles. Of course, young drivers between 17 and 22 have the most to gain by collating hard data that proves they are not the accident-prone speedsters insurance statistics would suggest. Insurethebox says average savings for this category of driver - which has seen insurance premiums rise more than 80 per cent in the last two years alone - are running at £200.

The Insurethebox Group chief executive Mike Brockman says: "We are empowering car owners to control their costs - as long as they buy into our approach. And there are many other benefits to society, such as safer roads and lower CO2 emissions The little black box that could help fight soaring car insurance costs as people drive more sensibly." Mr Brockman says there is evidence that the technology is positively modifying driver behaviour, with average miles earned per month per driver rising from 50 to 58 over the 15 months of the company's operation.

But what if customers want to move to another insurer? What happens to the box? "If a customer wants to leave us we simply switch the unit off and leave it in the car. It is too much of a hassle to remove it", says Mr Brockman. This leads to the unsatisfactory situation of a customer who may want to move to another telematics-based insurer having to have a replacement box fitted.

Mr Brockman admits the current situation isn't ideal but says: "Sharing boxes will probably come in the future but at the moment we all use different boxes with different technology." It is a point reiterated by Tom Woolgrove, head of personal lines at the insurer Direct Line, the UK's largest car insurer by market share. "We agree that this type of technology is going to become very important, particularly for younger drivers, but there are practical challenges with it at the moment," he says. "There is no technology standard for the boxes or the data, making sharing problematic. The boxes aren't portable either, making it difficult when you want to switch insurers." Insurance companies also have different models of what they consider to be safe driving. And Mr Woolgrove warns that young high-risk drivers who don't adopt the technology could find their premiums rising even further as the safer drivers begin to pay less.

That said, Direct Line, which owns the telematics company TRACKER, is piloting its own version of the ‘black box' over the next couple of months, and the Association of British Insurers is in talks with the motor industry about the possibility of making the devices standard in all cars. But there is a flipside to all this data transparency. Drivers who don't conform to a telematics-based insurer's definition of a ‘good' driver could see their premiums rising. And if you have an accident all the relevant data, such as the speed you were travelling, force of impact, direction of travel, incident time, will all be recorded.

This certainly makes it easier for insurers to assess what actually happened and apportion blame, but it also means no hiding place or benefit of the doubt for drivers. There are also potential privacy issues. Do you want your every move to be tracked and logged? When does the helpful box become the spy in the dashboard? Mr Brockman says: "When we first started off there were a lot of Big Brother comments, but as we've gone on people appreciate that it's all about promoting safe driving and paying less for your insurance."

The technology can certainly play an important role in improving driver safety. The box contains an accelerometer that can measure G-forces, so when a car is in an accident with an impact of more than 2.5G, for example, the box can automatically alert the insurer's call centre and prompt a call-back to the customer to check that they're all right. The in-built GPS integrates with mapping software to show exactly where the accident took place. Mr Brockman says: "This technology can save lives. Last week one of our customers had a shunt that registered more than 9G. Our call centre was alerted immediately and they were able to track the car and deduce from the data that it had rolled over after an accident on a country road. They alerted the emergency services.

Luckily our customer wasn't seriously hurt." Other insurers are adopting telematics technology, too, particularly to help young, safe drivers differentiate themselves from their wilder cohort. Young Marmalade, for example, the insurance and car purchase company, has introduced the ‘black box' technology to help keep tabs on its policyholders. Its marketing director Nigel Lacy explains: "Our objective is to get young drivers into safer cars, so we sell cars up to three years old with the telematics unit built in. If it spots bad driving - harsh acceleration and braking, speeding, fast cornering, that sort of thing - points are deducted from their journey score, which starts at 100. Persistent bad driving sees the premium go up by £250, then £500."

Drivers can review the data for every journey on the company's website and see what type of driving is considered ‘bad'. Marmalade, which targets 17 to 25-yearolds, developed the system in conjunction with the Transport Safety Research Centre and Loughborough University. The bottom line is that this technology can seriously slash insurance premiums, particularly for the young, argues Lacy. "Our fully comprehensive insurance for young men is currently averaging £2,600, compared to the AA's average of £4,006," he says. Co-operative Insurance has also adopted ‘smartbox' technology on its Young Drivers policies and it can only be a matter of time before many other insurers use telematics, too. Indeed, the AA is set to become the first broker to start using telematics in pricing this autumn. But how long it will take the insurance and motor industries to agree on common technology and data standards is anyone's guess. On past performance it would be unwise to hold your breath.

CASE STUDY

When Chris McMahon, 18, from Calvert Green near Buckingham, passed his driving test last year, online quotes for fully comprehensive insurance on his 1.0 litre Vauxhall Corsa were averaging around £3,000 - a staggering amount for a student to fork out. Then his mum told him about Insurethebox, an insurance company promising to reduce subsequent premiums if he had a special box fitted to his car that recorded his driving behaviour. "They came to my house and fitted the box in about half an hour", says Chris. "At first I tried to ignore the data. It was a bit like having Big Brother watching you! But I soon learnt that if was going to earn bonus miles and reduce my premium I would have to drive slower on country roads and drive less at night. In the first month I was only awarded four bonus miles. Then I got 20 to 30 miles, and in June I was awarded 60 miles." The reward for Chris's safer driving was a renewal premium of £1,100 - £1,800 less than his initial premium and around £800 less than his friends were paying. "I think it does make you a better driver", concludes Chris, who is about to go to University of Cumbria to study English. "It makes you think twice about doing some risky overtaking manoeuvre or going round corners too fast. And the tracker is also useful if your car gets stolen."

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