Telematics motor policies were introduced into the UK market in 2011, and in 2016 they enjoyed a boom, their total increasing by 40% to over 750,000 by the end of the year. Telematics policies account for almost 8% of total sales, as in Germany being heavily skewed towards younger ages, 50% of them being sold to youngsters between 17 and 20 years and 30% to those between 21 and 25. There is, however, one company that targets motorists older than 25 years. The maximum discount for good driving is 25%.
The market for telematics motor insurance has largely been created by intermediaries, such as Ingenie, that writes business for a panel of insurers, and InsureTheBox, an MGA (managing general agent) with binding authority for a capital provider. Traditional insurers entered the market later and now write the most new business. The leading UK motor insurance comparison website, Confused.com, has 15 telematics brands at the time of writing, with three more in the pipeline.
Most providers of telematics tariffs raise the premium if the driving peformance turns out to be poor, but the main aim of this product is allegedly to achieve a dialogue with policyholders, the vast majority of whom are very young. Although their driving style is often fairly adventurous at the outset, experience shows that it generally improves over time. In that connection, there is currently a debate in the market as to exactly what bad driving is and what its effects are as far as insurance is concerned.
UK telematics tariffs are less profitable than conventional motor policies because of the very different infrastructure required, the cost of the boxes and the closer customer relationships, all of which outweigh the benefits of risk selection and claims cost control. However, in the opinion of Graeme Trudgill, Executive Director of the British Insurance Brokers‘ Association (BIBA), “Telematics is becoming the motor insurance solution of choice among young drivers as they can take control of their own premiums by electing to have their driving behaviour monitored. Industry statistics show there is a 40% drop in crash risk when a new driver has a telematics policy. Telematics equipment also helps reduce theft claims, many boxes doubling as vehicle tracker devices.” Furthermore, these policies also provide an enormous amount of data that can improve the underwriting and claims handling of conventional policies. Consequently, despite the complexity of portfolio…