15:50 04 December 2012
The European Court of Justice (ECJ) Gender Directive takes effect in just under a month, on December 21.
After this date insurers will no longer able to use gender as a criterion when calculating premium prices, which means women will no longer automatically be rated as better risks than men when it comes to car insurance.
Women have generally paid less for car insurance because the statistics show that they are involved in fewer accidents. From December 21 onwards, insurers will have to use other factors such as age, driving history, postcode and vehicle type to determine prices. The fear is that, when gender equality kicks in, we will see price increases for women rather than a reduction in premiums for men.
Telematics could offer a way around any price rises as it places increased emphasis on the type of driver you are, regardless of gender and other demographic factors, such as where you live and your age. In other words, you should be able to cut the cost of your car insurance simply by being a safer driver.
However, although telematics is also known as 'pay-as-you-drive' insurance, it's not quite that simple. Insurers still use statistics-based assumptions, alongside the telematics data, when calculating policy prices. And you won't see the benefits of being a safe driver until the telematics system has had the time to record your performance behind the wheel.
This means there could be certain driver groups for which telematics insurance may not be suitable, a theory that seems to be supported by the fact that it has not been taken up in any great numbers by motorists outside the 'young driver' category.
So let's take a closer look at telematics policies and see exactly how they work, who they are best suited to, and if there are any drivers for whom they wouldn't be appropriate. First, though, we'll see what goes on in that little black box...
How does telematics insurance work?
When you take out a telematics policy your car will be fitted with a small device, no bigger than a pack of playing cards, which will be used by your insurer to assess your driving style.
Commonly known as a 'black box', the telematics device records your speed and braking patterns, the distances you travel, the types of roads you travel on and at what times of day or night you travel on them. Telematics policies usually include an annual mileage limit of, say, 6,000 miles.
The data is then used by your insurer to calculate your insurance premium and, if need be, adjust it accordingly should there be a marked change in your driving style or the number of miles you cover.
You may be charged an up-front fee to cover the cost of the telematics box and its installation, and although you will be quoted a price for your annual premium, this is subject to change and can decrease or increase based upon your performance on the road. As an added incentive, some insurers will also increase the annual mileage limit of drivers who consistently perform well.
You can regularly check how you are performing in each category via an online dashboard which highlights the areas in which you are excelling and those in which you are falling behind, so you can modify your driving style to have a positive effect on your premium.
All of which sounds like a win-win for motorists and insurers alike: not only does the system encourage and reward safer and more considerate driving, it also enables fairer pricing as it is based upon the performance of individual drivers instead of general, statistic-based assumptions.
Or is it? Let's look a little closer...
Long drives, lost lives and statistics
Although telematics technology enables insurers to assess each individual's driving style and price his or her policy accordingly, they still use certain assumptions to help calculate costs.
For instance, the theory goes that the less time you spend on the road, the less likely you are to have an accident, and so people who travel fewer miles will benefit from a reduction in their premium price - but this is nothing new since this is already usually the case with standard insurance policies.
However, telematics technology allows insurers to see exactly how many miles you are covering and your premium price will increase should you exceed the agreed mileage limit.
For instance, telematics insurance providers Insure the Box only offers policies with annual mileage limits of either 6,000 or 8,000 miles. And although you can earn up to 1,200 extra miles through good driving, if you need to cover any greater distances then you'll have to buy Top Up Miles, which are offered in bundles of 250, 500, 1,000 or 2,000 miles.
So, given the mileage restrictions, it could be the case that motorists who cover a lot of miles over the course of a year would not benefit from a telematics policy.
In addition, drivers who drive on faster roads, such as motorways, will also pay more for their policy than drivers who do not, the theory being that there's more chance of being involved in a serious or fatal crash when travelling at higher speeds.
However, data from the Department for Transport's 'Think' road awareness campaign states that: "More than two thirds of all accidents in which people are killed or seriously injured happen on roads where the speed limit is 40mph or less. At 35mph you are twice as likely to kill someone as you are at 30mph."
This either suggests that motorway users are being unfairly penalised as the statistics don't back up the assumption, or it is a clear indication that young drivers are the main focus for telematics policies, with the increased premium price for motorway use acting as a deterrent to keep inexperienced drivers away from faster roads.
Who can benefit from a telematics policy?
Young drivers are currently the main target group for telematics insurance policies, and it does offer a genuine way for young drivers to buy affordable premiums. Happily, this in turn should reduce the instances of insurance fraud, particularly 'fronting.'
The technology and its implementation is also designed to make drivers think more about what they do when behind the wheel and so encourages safer driving. This is particularly relevant to new drivers as Driving Standards Agency (DSA) statistics show that one in five new drivers will crash their car in the first year.
And I can certainly vouch for the fact that having a telematics box installed in your car makes you consider your actions behind the wheel, you can find out why here.
Convicted drivers and drivers who have recently lost their no claims discount (NCD) due to having to claim for an accident might also benefit from a telematics insurance policy as they could get lower premium prices sooner than they would by waiting for their conviction to become spent or patiently rebuilding their NCD.
But it's not just about saving money. If telematics technology promotes safer driving then this is good news for every motorist.
Please note: Any rates or deals mentioned in this article were available at the time of writing.
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