Innovation Blog
Innovation in Car Insurance
Telematics is reaching a critical stage on its inevitable journey to being the normal way car insurance is purchased, so this month we take look at the likely future of this innovation.
Insurers have been looking at pay-as-you-drive insurance for a number of years now but it looks like two distinct approaches are becoming formalised and a battle looks set to ensue in the coming years to get customers onboard.
The most complete approach, involving installing a “black box” recorder in the vehicle, is being pursued by mainly small start-up companies such as Insure the Box, Cover Box and iKube. They are able to offer significant savings because of the quality and quantity of driving data they receive from the box over a long period of time. However in order to offer these savings as well as covering the high cost of installing the equipment they are targeting the segments of the market that are currently suffering disproportionately high premiums (iKube is aimed at young drivers and Insure the Box aiming for lower mileage customers).
The second approach, using smart-phone apps, is being favoured by the larger insurers such as Aviva and Direct Line as they seek to serve their broader customer bases in a more cost-effective manner. This approach generally provides less robust data because it relies on the customer having the phone in the vehicle, however it avoids the cost and logistical problems of having to install hardware in customers’ cars.
Perhaps not surprisingly the black box approach is able to offer the bigger discounts with average savings of over £600 being quoted, compared with 10-20% being predicted for the smart-phone app approach. So the question is how will these two approaches develop in the coming years?
The sheer scale of the required capital investment makes it seem inconceivable that it is economic for a company the size of Aviva or Direct Line to fund the cost of fitting the box to their millions of customers – indeed both have piloted such schemes in the past but moved away from that approach. And the alternative solution also suffers in that it provides more modest rewards to customers as well as being more open to manipulation of the data. It therefore appears that there is no clear winner so the market is likely to sustain both solutions for at least the foreseeable solution. We consumers can therefore look forward to a period of active marketing of the benefits of both solutions in an attempt to gain/protect market share as this new innovation spreads through the market.
The one thing however that must surely be worrying the current players is the potential for the motor manufacturers to muscle in on the action. The necessary equipment to provide this data is now fitted as standard in all new cars so it can’t be long until they start to leverage this unique position of having high quality, reliable data at no extra cost. At the moment they seem ominously quiet on the subject…..
By Brian Carrington, February 2013
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