Articles - Where next for telematics

It’s still winter, it’s still dark quite a lot and in the words of Oliver Hardy ‘a lot of weather we’ve been having lately’. All this means it’s a tricky time for driving – particularly for young, inexperienced motorists. We know the role telematics plays in supporting young drivers. But is this market in danger of reaching saturation point? I think few would deny that the evolution of telematics insurance has reached an interesting stage in its development.

 By Graham Gordon, Global Market Strategist, Telematics, LexisNexis® Risk Solutions
 We have seen the cost of offering telematics insurance fall. We’ve also seen take up of telematics insurance in the young driver category rise, with 975,000 policies in place today . And we now believe with a good degree of certainty that telematics insurance is cutting claims losses in this age group. It’s no coincidence that as telematics adoption has increased, road casualties have fallen significantly amongst young drivers compared to the rest of the population .
 Moving from 1million to 9.8 million
 There are now over 70 retail brands targeting the new and young driver market and around 20 different telematics propositions. If the growth of telematics policies continues at a steady rate, then this market is capped at around 1 million drivers. That is because only a third of 17-19 year-olds hold a UK driving licence, which is broadly a million drivers and not all drive a vehicle. This number is a drop in the ocean when one considers the 39m driving licence holders across the UK . For the market to continue to grow, opportunities outside the young-driver market must be considered.
 To help identify this opportunity we undertook a detailed survey of over 3000 motorists to understand their attitudes, opinions and preferences for telematics insurance. We ensured that our samples matched UK demographics on age, gender and ONS social class.
 What we found is that whilst there is some level of resistance and certain barriers in some segments of the driving population, today there is an untapped growth market of 9.8m drivers.
 The findings
 We asked all of our respondents had they heard of telematics enabled insurance or “black-box” insurance programmes. 77% of our respondents had. We then asked if they had concerns about the use of telematics and driver behaviour and 49% responded that they didn’t. From these, 27% said that they would be likely to buy a telematics policy, and a total of 25% would be interested if offered a policy today. Only 12% of those surveyed were fundamentally against telematics across all age segments and would definitely not buy a telematics policy.
 8% (broadly represented from all age demographics) said that they would definitely be interested in a telematics policy; with 15% buying if a price discount level could be established with 2% (mainly younger drivers) aware of the driver safety messaging of telematics.
 Extrapolating the 8% who would definitely be interested in a telematics policy across the population, equates to 3.1m drivers who could be interested in a policy if offered today - a 287% increase in the current market size.
 17% of the sample that were aware of telematics insurance claimed that they would be interested in a telematics policy with the caveat that they have to understand the price discount and how their data is managed.
 Therefore, if the industry could communicate the value of exchanging driving behaviour better, the market potential increases by a further 216% (above the 3.1m that are immediately interested) to 9.8 million drivers.
 Four main consumer groups
 We have identified four main groupings amongst consumers – those that are already or have recently utilised telematics; those that have expressed an immediate interest in telematics; those that require the value to be better communicated and finally, the Mass Market.
 The insurance sector has the first market wrapped up. The focus needs to be on those with an immediate Interest from the growing number of consumers that have experienced telematics either directly, as a young-driver, or indirectly as the parent or guardian of a young-driver and those that need the value better communicated. These consumers are broadly educated to the headline benefits of UBI insurance. However, they need access to better information and the market needs to promote and communicate the benefits.
 The Mass Market (25m drivers, the mass market is 65% of the driving population) is the largest segment of consumers that is hardest to reach. They are paying a low insurance premium where discounting would not prove to be enough of an incentive, have never made a claim or been involved in a collision. Or, they are generally happy with the service currently received.
 We believe that this largest segment will be addressed by new connected car services and lower cost driving data capture over the coming years.
 It is clear to us from this survey that there is an immense untapped opportunity for the insurance sector to develop propositions to serve groups two and three. Education and communication will be key.
 Interestingly, in the biggest shake up to the driving test since the Theory Test was introduced 21 years ago, a new driving test was introduced on 4th December 2017 which should better equip new drivers to deal with today’s road conditions. December also saw the 5th anniversary of the EU ruling to remove gender as a rating factor in insurance - which was undoubtedly a key factor in the growth of telematics insurance in the UK – perhaps the biggest shake up in motor insurance for young and novice drivers.
 I wonder how many of the more experienced drivers would pass the new practical exam? After their driving test, most motorists drive without any form of further guidance or training other than a gentle word from a passenger or another motorist! We all think we know how to drive don’t we? Many of us in the insurance industry may have assumed that this would be the attitude if we attempted to sell a telematics policy to a motorist outside of the young driver bracket. Our research seriously challenges this view.

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