James Daley

By James Daley

If you're 18 and have just got your driving licence, getting an insurance policy can be incredibly expensive. For some, the monthly installments are as much as these young drivers would pay in rent. Lucky for them that in most cases, their parents are happy to let them reside rent-free at home for a few years after reaching adulthood.

A few years ago, insurers latched on to a way to help bring premiums down for young drivers. By installing a black box - known in the industry as a telematics device - in the back of the vehicle, insurers could monitor the driving behaviours of their customers. With the promise of cheaper premiums and other rewards for driving well, telematics incentivises better driving - a win for the customer in terms of money back in their pocket, but also for the insurer, as they end up having fewer claims, and are able to more easily identify fraudulent claims.

The beauty of the model is that unlike regular insurance policies, it firmly aligns the interests of the customer and their insurer. Drive more safely, and when you come to renewal, your premiums will fall. That's a very different experience to the one that most of us have, where our insurer grabs our business with an eye-catching premium in year one, and then tries to get away with a double digit percentage increase in year two.

Happier customers

One of the other great elements of telematics is that it increases engagement between the insurer and their customers. Insure The Box, the largest telematics insurer, says that clients on average login twice a month to its personalised portal - where they can read all about their driving performance, and even see their own driver score. This helps customers build loyalty in the brand, and better understand why their premiums are going up, or more likely, why their premiums are going down.

There's no doubt that the roll out of telematics needs to be handled with care. Insurers who use it are collecting a lot of data about their customers. And it's important that this data is protected and not exploited. It's also important that it's accurate. But if these hurdles can be overcome - and so far, they seem to have been - it's hard not to see telematics gaining traction far beyond the young driver market. Car manufacturers are already talking about installing the technology as standard.

Big brothers aren't always scary

While there's a natural fear about the intrusion that black boxes bring, I don't think this is insurmountable either. While I've been known to occasionally drive 85 mph on the motorway, and worry that a black box insurer would penalise me for doing so, Insure The Box's data shows that drivers who speed a little on motorways are fairly low risk. In contrast, those who drive down a narrow country lane at 55mph - which is entirely legal - are often the ones who put themselves at a much higher risk of being involved in an accident. If telematics boxes can be used to promote safe driving, and customers can be assured that they are not going to become part of a Big Brother enforcement system, then I think they could have widespread appeal.

More broadly, there is surely something that banks and other parts of the financial services industry could learn from the idea behind telematics.

Using data to know your customer better, and to offer them a better deal as a result, is something that banks could have been doing decades ago. As the gatekeepers to your finances, they know your spending patterns and which financial products you hold. They are perfectly placed to be brokers of good value - helping you realise when you could be saving money by switching to a better product. This would start to realign shareholders' interests with those of their customers - and would move us away from the unconsumer-friendly business models based around inertia, which have prevailed for the past 20 years.

No one likes a mean big brother, but having a big brother that protects you and looks out for your best interests sounds pretty good to me.