Since 2014 a number of German insurers have been selling telematics motor policies. (See WftW 197). Although the maximum discount for good driving can be as high as 30%, sales have, on the whole, been disappointing. The number of policies is less than one percent of the market total, and some providers have withdrawn the product. Is an opportunity being missed, or is motor telematics a white elephant? Could there be a profitability problem?
Some German insurers do not raise the premiums of those telematics policyholders whose driving turns out to be poor. In such cases profitability is being surrendered for market share, unless telematics tariffs really do encourage motorists to drive much better. If this is achieved, insurance companies can share the improved loss experience with the good drivers. How might this work out for policyholders aged between 18 and 25 years, who, because of the high premium rates charged to this age group, are the sales target of telematics tariffs, and how might unisex rates complicate the issue?
In 2010 the Association of British Insurers (ABI) estimated that when unisex rates would be introduced in 2012 the motor premiums for young men would fall by 10% on average and those for women rise by 25%. The figure is not likely to be very different for Germany. This suggests that a female driver below the age of 25 should find it easier to earn a lower motor premium with a telematics policy than her male counterpart. A telematics tariff at younger ages could thus prove to be very expensive for insurers if more women than men take out these policies, assuming they are bought by a cross section of drivers of both sexes. This, of course, may not be the case, but it shows that the portfolio management of telematics policies is a complex matter.
From the age of 26 onwards the driving performance of men and women drivers becomes gradually similar, until at age 35 the difference is relatively slight. At older ages drivers have usually built up a no-claims bonus, and the telematics option will probably not enable them to lower their premiums significantly. However, telematics tariffs would give older people with a poor driving record the chance to lower their high premiums, and if they were prepared to accept higher rates for poor driving, this could prove to be a profitable alternative market niche.