Black box car insurance, also known as telematics insurance, is a relatively new kind of car insurance. It is unclear exactly what the current number of live black box insurance policies is but to date, insurethebox, which is the UK’s largest telematics insurance provider, has sold almost half a million policies in the last five years.
It’s a growing market, largely dominated by young drivers, but why?
Telematics was designed to make insurance more affordable for young drivers and to be used positively, to encourage safer driving behaviour.
The evidence
Plenty of evidence exists to demonstrate that telematics works. For example, young drivers insured with insurethebox are 75% less likely to cause an accident after 12 months of insurance. Around half this improvement would happen anyway as they gain experience, but the incentives inherent in telematics are responsible for a reduction of over 30%.
Young drivers with an insurethebox policy can also expect to be involved in 700 fewer accidents as a result of having its telematics box.
And if an insurethebox customer is involved in an accident they have the benefit of Accident Alert. This means that if the black box senses a strong impact on the car an alarm goes off in the Service Centre and, if the car is stationary, insurethebox will try to contact the customer on their mobile phone to check they are OK. If it is appropriate they will also call the emergency services and request that they attend. In 2015, insurethebox have contacted the emergency services an average of 7 times a month.
But what is it about telematics that makes people drive more safely?
Why does telematics work?
There are a number of reasons why telematics works. Firstly, when opting to buy a telematics insurance policy a customer is actively agreeing to have their driving monitored and is more likely to respond positively to feedback.
Having a box in the car can make drivers more careful. It makes them think more proactively about keeping within speed limits, braking and accelerating smoothly, cornering, when they drive and the types of road they drive on – all of which have an impact on their driving score and the rewards they could get.
Customer feedback and interaction
In addition, telematics works because most telematics products are designed so that insurers can provide feedback to their customers, tell them how they’ve been driving and what they need to do to keep getting better at it.
With most telematics insurers, customers get access to a personalised feedback system such as an online portal where they can review their driving history. Different insurers provide different feedback, but generally speaking drivers can find out about their speed, the time of day they’ve driven, motorway driving and the periods they have driven without taking a break. This interaction between insurer and customer is crucial in helping customers to become safer drivers.
Positive rewards
One of the primary reasons that telematics works is because drivers know that if they drive safely they get rewards. In the case of insurethebox, which aims to incentivise customers to drive safely rather than penalising them for driving badly, customers are rewarded in the form of bonus miles and may get better premiums at renewal. This engenders long-term good driving habits. For example, customers can get up to 100 additional miles of travel for driving safely (policies come with 6,000, 8,000 or 10,000 miles of cover).
Telematics insurance providers also give customers bespoke renewal rates based partly on their actual driving behaviour. In the case of insurethebox, over 90% of young drivers (17-24 years old) see an average reduction of £200 on their first renewal premium.