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Insurance telematics: Understanding the UK market

Andrew Tolve reports on the growing demand for insurance telematics in the UK

When Britain’s largest insurer, Norwich Union, discontinued its “pay as you drive” policy in 2008, citing low demand from drivers and carmakers, it stalled the insurance telematics market in the UK. Some viewed it as the death knell of the fledgling sector altogether.

Instead, just three years later, the market for insurance telematics in Britain has rebounded. Young drivers are eager to cut their expensive premiums, while resistance to data tracking among older drivers has diminished. New consumer research commissioned by Towers Watson reveals that more than two-thirds of UK drivers aged over 35 would consider having a telematics monitoring device fitted in their car to save money on their insurance. Willingness to participate in a pilot scheme was higher still at 77 percent.

As a result, most major insurers are piloting pay-as-you-drive or pay-how-you-drive programs, and upstart companies have already introduced solutions to the market. “The time is right, the technology has become a lot cheaper, and there’s a lot more demand for it,” says Harald Trautsch, chief marketing officer for Octo Telematics and an adviser to Insurance-Telematics.com, a hub for industry information. (For more from Harald Trautsch, see ‘Insurance telematics: Differentiation is at the core of every value proposition’.)

Andy Walters, managing director at Quartix, agrees. This year Quartix, one the UK’s main vehicle tracking service providers for the fleet sector, responded to market demand and began supplying Coverbox with telematics units destined for consumer insurance telematics programs. “The market seems incredibly dynamic to us,” says Walters.

The youth factor

The most expensive insurance premiums in the UK belong to young men between the ages of 17 and 20, who statistically get in the most accidents and drive more recklessly than the rest of the population. Young men, dissatisfied with paying premiums between £2,000 and £4,000, have looked for creative alternatives. “These kids are not stupid,” says Trautsch. Instead of paying exorbitantly high premiums, some “register their cars under their grandparents name, so you end up with a lot of speeding grandmothers in the UK”

An easier alternative is to go to websites like GoCompare.com and Comparethemarket.com, which juxtapose quotes from various insurers and allow drivers to choose the cheapest ones. “I just renew my insurance every year, but these guys will go on the Web and change companies for a difference of 10 percent,” says Walters.

The opportunity to add a telematics box that theoretically could decrease their premium costs by upwards of 20 to 30 percent is therefore attractive. Younger generations are fluent with technology and don’t harbor inhibitions about privacy the way older generations do. “At the end of the day, this about price and that’s all,” says Walters. He discards the notion that value-added services provide additional incentive: “That’s certainly not the case in the UK. Here, young drivers are singing up because they get cheaper insurance.” (For more on value-added services, see ‘The business case for insurance telematics is there in the making’.)

The European Court of Justice recently ruled that it will be illegal to use gender as a basis for pricing insurance and pension products from December 2012. As a result, car insurance prices for women are expected to rise significantly, which will likely further drive the insurance telematics market in the UK. With this new ruling, says Walters, “You can charge someone for driving like a man, but not for being a man. And telematics can tell you if you drive like a man or a woman.” (For more on the EU ruling, see ‘Insurance telematics: What’s gender got to do with it?’.)

The key players

Two companies dominate the insurance telematics market in the UK today. The first is Coverbox, whose model lets drivers choose premiums from any of the major insurers, then offers refunds if their mileage is less than anticipated or if their driving is limited to off-peak periods. Drivers also get a personal dashboard so they can track the times and miles they drive online.

Since the launch of this pay-as-you-drive model in 2009, Coverbox has taken leadership of the UK market for telematics-based insurance, with 17,000 units already installed. Cobra and Quartix supply the majority of Coverbox’s telematics equipment; Quartix is currently installing approximately 1,000 units per month, Walters says.

Insure The Box, the second of the main players, takes a different approach by directly insuring drivers and granting them 6,000 miles worth of coverage. A telematics device called a Clear Box then tracks how many miles those drivers rack up. If they exhibit good driving behavior, they are rewarded with “reward miles”. If they run through their 6,000 miles, they can buy “top-up” miles for additional coverage.

Insure The Box has also set up innovative cross-marketing solutions to further incentivize drivers. The company’s Shopping Box offers access to leading high street retailers. For every £100 that drivers spend, they get reward miles, which can roll over from year to year. The company is growing by more than 200 clients a day. “They offer a very comprehensive solution,” says Traustch. “They’re giving you the opportunity to really prove they trust you first.”

Market evolution

Despite the prevalence of pay-as-you-drive models today, the future of insurance telematics in the UK likely rests with pay-how-you-drive solutions. Telematics equipment can now measure rates of acceleration, deceleration, harsh breaking, and active speed, thereby painting a more accurate picture of how someone actually drives and what sort of risk they present to an insurer.

Walters confides that Quartix is currently in the midst of testing pay-how-you-drive models with many of the top insurers in the UK. “It’s not obvious which [of these pilots] will turn into big opportunities and which will not,” says Walters, “but there’s no doubt that insurance companies are worried about missing out.”

Another future focus is to create databases of research that can conclusively link certain driving behaviors with specific risks of having an accident. “Currently, I can’t go to the insurance company and say, ‘If a driver breaks like that and speeds like this, there’s an X percent chance he will have an accident,’” says Walters. “Until insurance telematics has been around for a few years, no one can say the answer. Once we can, though, it’s a very powerful tool.”

Walters forecasts that five years from now most UK insurers will have a telematics solution on the market, though these solutions will work in different ways to assess driving risk. The one commonality will be that all insurers will try to leverage the devices to reward the good drivers and jettison the bad. “They want to get rid of their bad risks and make sure their good risks don’t get another quote at the end of 12 months,” says Walters. “That’s this market in a nutshell.”

Andrew Tolve is a regular contributor to TU.

For more on insurance telematics, join the sector’s other key players next week at Telematics Detroit 2011 in Novi, MI on June 8 and 9, Insurance Telematics USA 2011 on September 8-9 in Chicago, and Telematics Munich 2011 on November 9-10.

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