Will Young Driver Premiums Be Lowered By Telematics?

Will Young Driver Premiums Be Lowered By Telematics?

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Under a scheme launched by The Co-Operative Insurance recently, young drivers could stand to pay much less for their motor insurance than recently projected.

The Co-Op have announced that, under their Young Driver insurance plan, policyholders will be given a mobile-phone-sized Smartbox, which, much like the black box technology used on aeroplanes, will collect information regarding driving styles, speed, driving times etc. This information will be fed back, via satellite, so that insurers may then more accurately assess risk and thus calculate fairer premiums.

With a recent ruling outlawing sex discrimination within the insurance industry risk assessment by the European Court of Justice, women specifically could face steep rises to their insurance premiums over the coming years. With the law due to be enforced on 21st December 2012, according to the British Insurance Broker’s Association (BIBA), women drivers could face premium rises of up to 25%, with some even facing rises of up to 50%. Some female drivers under the age of 21 will even be set to see a premium increase of up to 60%, forcing some off the road altogether.

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Up to now, insurance companies have assessed the risk of insuring a driver based on their age and sex, with statistics showing that young male drivers under 21 are almost double as likely to have an accident than a female of the same age, according to BIBA.

Coming as a concern for some, conversely, those young male drivers who do take risks and who may have been prevented from driving due to their place in a high-risk category could now see their insurance payments reduced by between 10 to 25 per-cent.

Adrian Webb of esure commented: “If young men’s premiums are artificially reduced, this could lead to more opting to choose more powerful vehicles,” he said. “It is particularly alarming given that the head of the Association of Police Officers in the UK in 2005 noted that the biggest killer of young women in Britain is their boyfriend’s and male friends’ driving.”

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Mark Winlow, head of general insurance at audit company KPMG, said on the future use of Smartbox technology: “The most immediate effect of this ruling will be felt by women who will see their motor insurance premiums increase by up to 50%. However, of greater concern to the industry is the likelihood there will be further European challenges, particularly around age.”

“This is a more significant factor than gender, as age is used much more widely to differentiate risks. For example, a young male driver can easily be charged 1000 per cent – 2000 per cent more than the same man when he reaches 50. In anticipation of further restrictions, insurers are already looking to alternative methods to understand their customers and risk better.”

KPMG also foresees, in view of the current and predicted changes in the car insurance industry, that like the Co-Op and its Young Driver policy, many other insurers will enlist the use of telematics in order to more fairly assess risk.

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Additionally Winlow stated: “Telematics is an area being investigated by a number of motor players… [It] is already used extensively in other European markets. Despite the current cost of installing the black boxes, developments of this nature could have far reaching effects on the market, removing the traditional annual renewal in favour of monthly statements determined by that month’s driving habits.”

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