Drivers Turn To Black Box Insurance As Premiums Rise
Tax hike contributes to higher premiums which encourages drivers to cut costs via devices that monitor behaviour.
Telematics motor insurance explained
Drivers have increasingly turned to “black box”, telematics, insurance perhaps to counteract price hikes caused, in part, by a rise in the rate of Insurance Premium Tax. But how can telematics help?
A telematics policy requires the motorist to have a device installed within the vehicle. Its purpose is to monitor parameters such as: how many miles it covers, whether it is required during more hazardous times of day such as rush hour, and whether the motorist's driving style is safe and smooth or hard and aggressive.
This enables the insurance company to tweak the monthly premium up/down based on specific, indisputable, facts. In other words, sensible behaviour is financially rewarded and irresponsible behaviour penalised. The policy holder has control of his/her fate.
In contrast, a traditional, non-telematics, insurance premium is based on more generic parameters. For example, an insurer might conclude that the average 21 year old male is very inexperienced and over confident. That is reflected in the premium of every 21 year old male; irrespective of experience, capability and attitude.
Number of telematics polices in UK
The British Insurance Brokers’ Association surveyed telematics providers to confirm the number of live polices in the United Kingdom. During March 2016, there were 455,000 compared to only 323,000 in December 2014. That represents an increase of about 40%.
The Association confirmed: “These types of policies can offer savings of up to 25% for careful drivers. In particular, young drivers who often struggle to find affordable cover can save over £1,000”.
Executive Director Graeme Trudgill explained: “Telematics is becoming the motor insurance solution of choice among young drivers.” He continued: “They can take control of their own premiums by electing to have their driving behaviour monitored.”
Furthermore: “Industry statistics show there is a 40% drop in crash risk when a new driver has a telematics policy. Telematics equipment also helps reduce theft claims (with) many doubling as vehicle tracker devices.”
Mr Trudgill concluded: “We are delighted to see these figures increasing (as) the benefits of a greater take-up of telematics technology are many.” He argued the advantages include: lower premiums, safer roads, and a reduction in the number of uninsured drivers.
Cost of motor insurance rises considerably in 2015
The cost of insurance has risen considerably in recent times, particularly towards the end of 2015. The Confused.com Car Insurance Price Index revealed that the typical cost increased by 7% – up to £672 – between Quarter 4 of 2015 and Quarter 3 of 2015.
Confused.com explained: “This is the largest quarterly increase in premiums seen in 5 years and means that motorists are now paying £43 more than they were in the previous quarter”. The 2015 Quarter 3 cost was £629. Men in the 61 to 65 age bracket suffered most during the final part of the year, with premiums increasing by 10%.
Annual figures make unwelcome reading too. Between Quarter 4 of 2014 and Quarter 4 of 2015, motor insurance prices rose by 13%. This equated to a further £78 on the typical 2014 Q4 cost of £594. During the year, male premiums rose by 15% and female premiums 11%.
Increases varied by region too. In Q4 of 2015, premiums in Northern Ireland rose most so were 18%/£125 higher than the equivalent period the previous year. Northern Ireland was followed by the: Scotland Highlands and Islands (16%/£69), Scotland East and North East (15%/£63), South East (15%/£74) and Scotland Central (15%/£70).
Steve Fletcher, Head of Data Services at Confused.com, said: “Last year gave motorists a tumultuous ride, hitting them with consistent price rises and an increase in Insurance Premium Tax”. The Automobile Association recently suggested that the former can partly be blamed on the number of suspect personal injury claims.
Insurance Premium Tax rise penalises motorists
Insurance Premium Tax rose on November 1st 2015, from 6 to 9.5%. The Association of British Insurers estimated prior to the rise that it would affect 26.5 million vehicle policies. It also claimed that the typical cost of comprehensive insurance would increase, by £13.
The Treasury said the rise will generate a further £8.1 billion by 2021, but not all from motor insurance. Furthermore, it has a history of raising Insurance Premium Tax. In 1994 the rate was 2.5%, then it rose to 4% in 1997, to 5% in 1999, and to 6% in 2011.
The Association's Director of General Insurance Policy, James Dalton, said of the increase at the time: “Millions of people across the country face being hit in the pocket by this rise in Insurance Premium Tax. Whether it’s a legal requirement or you want to buy extra cover, insurance is a financial safety net, not a luxury.”
He continued: "While insurance remains one of the most competitive industries in the UK, its affordability can’t be taken for granted. Further tax increases must be avoided if insurance is to remain accessible for all.”
No respite for motorists
Confused.com's Steve Fletcher added: “Unfortunately for motorists, we’ve now seen 11 consecutive months with no premium decreases which would suggest that the trend is likely to continue. If this is to be the case, we would expect the average comprehensive cover premium to soon exceed the £858 per-year high we saw during 2011.”
On this basis, it is no surprise that motorists turn to telematics cover to cut costs. Further steps that might be beneficial include:
- adding experienced named drivers to the policy,
- limiting mileage,
- earning a no-claims bonus,
- avoiding after market modifications,
- completing the Pass Plus course,
- increasing the excess (amount paid towards a claim),
- driving sensibly to avoid penalty points,
- picking a car with a low insurance group rating, e.g. 7 of 50.