By Selim Cavanagh, Vice President, Insurance UK and Ireland at LexisNexis® Risk Solutions
Around the same time, a news story came out from the Association of British Insurers (ABI) showing that although those aged 18-20 paid the highest average premiums last year at £973 (this is without the impact of the Ogden rate change), between 2015 and 2016, it was the only age group not to see increases in their average premiums.
While this news show that telematics insurance helps lower insurance costs, LexisNexis Risk Solutions own experience working with insurance providers suggests that costs are reduced by as much as 41% when a driver takes out a telematics policy . It’s not just in premiums that the benefit is felt, claims cost and fraud can also be effectively tackled with telematics.
Currently young people pay the most for car insurance because they are statistically over-represented in reported road accidents and are associated with higher claims costs. In 2015, the death per million population rate was at 49 road deaths for every million people aged 17 -24 compared with 27 deaths for every million people for the whole population .
The 18-25 year old age group make up close to 25% of all motor insurance claims with claims and the average claim amongst the youngest drivers is £4625, which is double that for drivers aged 51 to 70.
Logic dictates that the more the industry can encourage young drivers to take out telematics policies, the more insight will be gained for underwriting, the more accessible insurance will become, and more accidents could be reduced in severity or prevented entirely.
Lowering insurance costs and reducing claims costs by improving the underlying risk (through self-selection and encouraging poor drivers to be better drivers) is the essence of telematics insurance.
Through telematics, insurers can provide direct feedback to drivers, particularly in extreme events, in close to real-time and uncover truths about our driving behaviour that have been difficult to establish previously. For example, our analysis at LexisNexis shows that speeding and hard braking both increase in the summer months compared to the winter and 68% of drivers have a better driving score in the winter than the summer . This statistic is one of the findings about telematics that may seem counter to industry experience. Claims tend to rise in winter months linked to adverse weather conditions, but our analysis would suggest risk related to driver behaviour increases in the summer months. Given our analysis is of drivers with telematics policies, it would be logical to assume the incidences of speeding amongst drivers who are not being monitored is much worse.
At LexisNexis, we see this analysis as just one of the reasons why telematics shouldn’t solely be for the young – generations of drivers are seeing their premiums increase and the industry has an opportunity to extend the benefits to a wider demographic of motorists who want to be rated for insurance based on their driving behaviour.
A convergence of developments is making this possible. The cost of telematics data collection technology has fallen as the accuracy of scoring for rating has increased. The shift has had the effect of making telematics less costly for insurance providers to offer, easier for customers to adopt with plug and play 12 volt solutions to collect data, as well as consistency of scoring to give both driver and insurer confidence that the driving score accurately reflects the risk.
Consistency of scoring when you could be taking data from different devices including different models of smartphones, is vital for rating telematics policies and road speed data is central to scoring accuracy. Advances in this area now mean insurance providers can provide verification and visual proof of road speed limits in near real-time to support customer communications in cases of excessive speed . The information can also be used as evidence in the event of collision or to cancel a policy if deemed necessary.
In addition, the data the insurance sector has collected has now reached a volume where insurers should be able to predict the likelihood of a customer having an accident and the associated loss cost. This is tremendously powerful risk information.
Finally, the complexity of telematics insurance is being broken down with more modularised, device agnostic data solutions available, which recognise that the market is at varying degrees of adoption, with varying degrees of needs, IT system capabilities and resources. What we’re seeing, therefore, is a pick and mix approach to telematics solutions ranging from simply scoring data through to a full end to end programme.
Driving data is the future of motor insurance. Those insurance companies which are operating and underwriting telematics policies will be ahead of the curve as more cars become connected and data from the vehicle is used to determine risk. We must congratulate the ABI for highlighting the impact telematics has made on insurance costs for the young and take these findings forward to ensure a wider generation of drivers can access insurance based on their driving behaviour.
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