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Telematics Explained: What is it, how it affects your Insurance Premium

Telematics Explained – Telematics has been around for a few years and is becoming more mainstream in the UK car insurance market.

By monitoring your driving style, insurers can offer discounts on your insurance premium.  Ideal for young drivers and those struggling to afford car insurance elsewhere.

What is Telematics and How does it work?

In a nut shell, the term telematics in the world of car insurance refers to the use of a wireless device to remotely transmit driving-related information to your car insurer.

Insurers typically send the policyholder a device that can be plugged into their car or van.  Alternatively, some insurers are letting customers use their own smartphone as the device and they just need to install an app for telematics data gathering.

Customers are offered the incentive of reduced car insurance premiums if their driving style is seen by the insurer as being careful and risk averse.

The telematics device or app can measure several different features of your driving that the insurer might find important.  These might include:

  • the times and days that you are driving
  • the number of miles that you drive per day
  • rate of acceleration or braking
  • cornering forces

For example, they will know if you are just popping to the shops occasionally, or if you are doing the daily commute for an hour each way at high peak times on the M25.  Do you race away from the traffic lights, or frequently slam on the brakes.  When cornering, do you adjust your speed to account for the sharpness of the bend or do you prefer to feel like you are cornering in the race car.

At regular intervals, the telematics device will send information wirelessly to your insurer.

Over time they will build up a picture of your general driving style and behaviour behind the wheel and assign a risk level.

With weeks or months spent in low risk categories, you would expect the insurer to adjust your car insurance premium downwards.  Likewise, a persistently aggressive driving style will be seen to increase your risk level resulting in a higher car insurance premium.

Telematics Questions and Answers

Can my car insurance premium go up as well as down?  Yes.  It would be reasonable to expect that any benefits or savings experienced by careful drivers would be offset to a degree by increases experienced by the less careful.

Is this a case of big brother is watching?  Well, yes, but in a way that you consent to.  No-one is going to force you to have a telematics box in your car or to run a telematics app on your phone.  If you take out a telematics car insurance product you should do so in the full knowledge that any and all information about your driving behaviour may be sent back to the insurer and used in any way they see fit with regard to managing your car insurance policy.  That being said, read the small print carefully and ensure that your data goes no further, and that no third parties are being fed information about your driving behaviour.

Background of Telematics

The whole telematics market started out very small with just a few companies trying to sell their devices to insurers.  In many cases, back in the day, those ‘devices’ they were trying to flog were just black boxes with wires sticking out and stickers on the side, with nothing inside the box.

They were selling the idea of telematics before there was a workable product.

But insurers came around quickly to the idea.  In the world of managing and balancing risk, which is what insurance is all about, having the eyes and ears of a constant monitoring device in the car lets the insurer know very quickly what your real risk profile is.  It helps them match you to a realistic risk category and your car insurance premium is adjusted accordingly.

Things have moved on very quickly.  In many cases the black boxes are already gone.  Replaced with the customer’s own smartphone and a downloadable app.

The smartphone really is an ideal device for telematics purposes.  It knows the date and time, it has GPS capability to know where you are and where you have been, it has accelerometers to measure the effects of acceleration, braking and cornering.  And everybody has one.

The insurer just has to convince you that it is worth your while to download their app and it has then cost them very little to set-up telematics and start tracking your driving behaviour.

Downloading an app to a smartphone the customer already has opens up a path of less resistance.  People are scared of black boxes but they will install all kinds of apps on their smartphones and not give it a second thought.

The marketing of telematics has also come on in leaps and bounds.  A recent television advertising campaign encourages several members of a family to install a telematics app on their smartphones and compete with each other for the lowest (safest) score.  Gamification strikes again!  Make it fun, make it a game or incorporate a competitive element and people will find it interesting and engaging rather than intrusive and scary.

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