The cost of car insurance is a major issue for drivers under the age of 25. Just when you are given the freedom to drive by yourself and get a car, you’re likely to find your choice of vehicle seriously limited by the insurance premiums that are layered on top of your monthly repayments.
These higher insurance costs aren’t randomly generated, they’re proportional to the risk profile of young and first time drivers. However, they are unfair in that they lump all young drivers into a single group, and don’t take into account the fact that some drivers within this group drive well.
Fortunately this picture is changing. But before we explain how young driver insurance is about to change, we’ll explain why premiums for young drivers are currently so high when compared to a more experienced driver insuring the exact same make and model of vehicle.
Get fairer car insurance. Based on how you drive
Young drivers insurance is based on the age group’s risk profile
Young drivers approach insurance companies with what is effectively a blank slate. An insurance company has no information about their individual driving habits or how they are likely to behave in a car. This is different from more experienced drivers, say those in the 26 – 39 age group, who will tend to have an existing insurance track record which can be factored into a premium.
Without any track record available for young drivers, insurance companies are forced to look at their behaviour as a group, based on claim records for this demographic as well as accident statistics. Neither of these paint a flattering picture of young drivers, who have historically been at a much higher risk of involvement in all kinds of car accidents.
Insurance companies struggle to accurately measure individual driving ability
Even when more experienced drivers approach them for cover, insurance companies have surprisingly little information on individual driving ability available to them. Virtually the only information they have about your specific driving ability is how long it has been since you last made an insurance claim!
Instead of looking at how you drive, they then lump you into broad categories to predict how you will behave on the road, and how likely it is that you will generate an insurance claim. Factors considered include your age, gender, where you park your car at work and at home and whether or not you qualify as a low mileage driver. Obviously the replacement cost of your vehicle is also taken into account and plays a major role in how much your insurance premium costs.
While this approach to insurance makes sense based on the kind of information insurance companies have typically had available to them, it has the unfortunate side effect of discriminating against good drivers and conscientious car owners who inadvertently find themselves lumped into a high risk category. It is also outdated given recent advances in telematics technology.
Change is in the air
In the last couple of decades telematics technology has gradually found its way into the insurance industry, based on its ability to provide information on what is happening to insured vehicles in real time. This technology initially entered the market as car tracker units that allowed insurance companies to track and recover stolen vehicles.
As the technology advanced, insurance companies were given the ability to record detailed information on the behaviour of individual drivers. Typically this was used to identify high risk drivers rather than to incentivise or reward good driving. Drivers, in turn, have been resistant to installing expensive, fault-prone tracking devices on their vehicles without any tangible benefit to themselves.
More recently the advent of the smartphone era has revolutionized the telematics industry. You have probably already been exposed to advances in this area, and are more likely to use the free navigation apps available on your smartphone than to purchase or install an expensive navigation unit on your car.
However, smartphones are capable of more than just navigation. The sensors on smartphones are also capable of picking up motion information, such as your speed and acceleration at any given moment, as well as calculating cornering forces. This means that a modern smartphone can effectively be converted into an advanced tracking device with the installation of a free app.
Usage based insurance
The technological shift enabled by the smartphone makes telematics technology more accessible and convenient. However, it doesn’t make the technology any more relevant to drivers.
The job of generating value from telematics apps is in the hands of the insurance industry, which has been slow to feed the potential benefits of telematics systems back to drivers. Fortunately, forward-thinking players in the industry have realized that telematics provides a solution to the problem of higher premium costs experienced by young drivers.
Instead of basing insurance premiums around the general risk profile of young drivers, insurers are now able, and willing, to use telematics apps to monitor individual driving behaviour and reward conscientious young road users for better driving. These rewards come in the form of more affordable insurance premiums and other financial incentives.
The benefits of introducing telematics based insurance into the Australian market go beyond offering cheaper premiums to good drivers. This technology, when combined with an incentive scheme, has been demonstrated to improve driving behaviour amongst targeted demographics. This means that apps like UbiCar can play a role in improving the safety of young drivers in Australia.
To explore the world of telematics based insurance download UbiCar now and find out how we reward smart drivers.