It’s not just young drivers who can benefit from insurance based on safer driving.
If you haven’t heard of telematics yet, chances are you will come across it soon. The practice of putting a ”black box” in your car to monitor how you are driving it might sound futuristic, but it is becoming increasingly important as a way of avoiding spiraling insurance premiums for young people.
Technology such as LynxSafe, offered by Lynx Telematics and successfully marketed through auto dealerships as a very profitable and new “back end” F&I product has been proven to reduce insurance premiums in some cases by up to 30%.
Vincent Rush, head of business development at Lynx Telematics, said “The response and success of the auto dealerships that we have partnered with in offering the LynxSafe telematics product through has been overwhelming. A dealership in Louisville, Kentucky for example, moves between 30-35 a month through their Finance and Insurance departments. At an average profit to the dealer of $500, that is around a $15,000.00 per month benefit to the dealership. Plus they are offering a product that brings real and immediate value to their customer. We really get involved with the dealership in teaching them how to market the product as well.”
Now older drivers are hoping to get in on the act, too. A survey by the comparison site GoCompare found that 59 per cent of over-55s are considering switching to a black-box based policy in the next five years.
Older, safer drivers may benefit in the long run from this type of insurance policy, but there is still little choice available, and many do not understand the restrictions that come with them.
Figures from one car insurance site, tiger.co.uk, show that in the three months to February 2012, telematics accounted for almost 14 per cent of policies sold, compared with 12 per cent the year before. Far from being merely a young person’s product, the largest number of sales went to those aged between 25 and 54, accounting for three-quarters of telematics sales.
This type of policy, provided that holders drive safely, can offer protection against rising car insurance. The AA’s latest premium index, published in January, showed a 15 per cent increase year-on-year. From December this year, this is likely to get worse, particularly for women, since insurers will no longer be able to take gender into account when setting prices. In the past, because women have fewer car accidents, they have gen Simon Douglas, director of AA insurance, says the new ruling should make telematics more popular. “It puts ownership of responsible and safe driving firmly in the hands of the driver, regardless of their sex,” he said. “It is genuinely a gender-neutral product.”
Telematics policies come in a variety of shapes and sizes, but they all have the same premise. A box is fitted into your auto in 10 seconds through the ODBII port, which feeds back information to the insurer about how, when, and how much you are driving your car. Most providers, such as Lynx Telematics, located in Cincinnati, Ohio, in recent years tend to be telematics specialists, but mainstream insurers are beginning to get in on the act, too, with the AA and the Co-op both launching products.
These are harder to understand than ordinary insurance policies, so it is vital to make sure that you know how your driving is being judged. For example, the telematics specialist Insure the Box charges policyholders by the mile. Motorists initially pay for 6,000 miles, and have the option to top up and receive reward miles if they drive safely. Its rival Tom-Tom FairPay allocates customers mileage units based on how they think they will drive. If you drive at night, then you will use up more points and may have to buy more mileage units at the end of the year.
The Co-operative Bank’s telematics policy gives you money back if you drive well. Your driving is scored out of five after a 90-day period. If you drive well, you get 11.25 per cent of your money back, but if you drive badly you pay 15 per cent more. The AA works on a similar system, but drivers are assessed every 90 days, getting money back if they drive well and penalized if they drive badly.
So if you are considering black box insurance, you must fully understand what you are getting yourself into. Some older drivers may find it is cheaper to buy conventional insurance, while restrictions on mileage and time-of-day driving should be checked carefully.
Figures from moneysupermarket.com, which offers several black-box policies as part of its motor insurance comparison site, show that for many older people, telematics insurance remains more expensive.
For example, for a 55-year-old male with five years’ no claims discount who is driving 10,000 miles a year in a 2006 Ford Focus 1.8, the cheapest non-telematics policy is $291.90, from Swiftcover. The cheapest equivalent policy with a telematics provider would be over $100 more from Insure The Box, while the Co-operative Bank would charge $477.
However, for older drivers who drive infrequently, telematics insurance can be cheaper. According to GoCompare, the CoverBox telematics insurance policy works out cheaper for some older people who have had a no-fault accident on their last policy.
Scott Kelly, head of car insurance at GoCompare, says drivers should also bear in mind that many telematics policies include features which are not available with other policies. “Telematics policies are competitive for many drivers who keep to a low mileage,” he said. “It’s also fair to say that telematics policies are among the most comprehensive, including features such as legal cover within the premium.
“If a telematics driver were to drive beyond the stated premium, say 3,200 miles instead of 3,000, the premium would be unlikely to adjust. Small differences in mileage will rarely affect it. By contrast, if the driver were to drive 6,000 miles instead of 3,000, they would be likely to see uplift on their premium.”
Telematics may be the future for all car insurance, but until it fully comes of age, customers should be sure it fits their needs. For young drivers, with over-inflated premiums, or older drivers who know they will drive very infrequently, telematics may be the answer.
Getting the cheapest car insurance is far from ‘simple’, whatever the TV market will tell you. A price comparison site, such as Compare the Market, Go Compare or Money Supermarket, can help, but the options can be bewildering. As well as considering telematics, think about whether you could pay a higher excess on a claim to bring down your premium.
And if you can pay the whole premium upfront then do so, since you may end up paying high interest on monthly installments.