New technology is turning car insurance into an individualised behavioural management tool. Jeremy Holmes, Melville Jessup Weaver principal, explains why insurers are becoming back-seat drivers.

Allegedly, most people rate themselves as above-average drivers.

Now, you don't need to undertake a complex statistical analysis (although you can see one here ) to spot the mathematical flaw in the above scenario.

And as long as the measurement of driving skills remains a more-or-less subjective matter, most people can probably justify the above-average delusion - to themselves at least. Insurance companies might hold a more sceptical view of your driving abilities but without any firm evidence otherwise (such as, say, a string of traffic accidents on your record) who are they to judge?

However, with the arrival of IT-mediated, behavioural feedback devices, or 'telematics', insurers are now in the driver's seat. Rather than lumping policyholders together by age or sex, for instance, insurance companies can use telematics to identify individual driving risk factors, and set premiums accordingly.
In a paper written for Melville Jessup Weaver clients , I explain the pros and cons of four types of telematics devices on the market, which are broadly categorised as: professionally-installed 'black box'; 'dongle' plug-ins; integrated new vehicle units, and smartphone apps.


The first telematics system to hit New Zealand, Tower's 'SmartDriver' tool, falls into the latter category.

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The SmartDriver app utilises the phone's inbuilt GPS and accelerometer to measure how far, and how well, the policyholder drives. Over the course of 250km, a profile is established for the driver and a score is given from 0 to 10. Based on this score, Tower then offers the driver a discount of up to 20 per cent.

That's a powerful incentive to improve your driving. And the result could be a traffic trifecta: lower premiums for drivers; higher profits for insurance companies; safer roads for everyone.

But we're a long way from that destination. There are still many technical challenges insurance companies must resolve before telematics becomes middle-of-the-road.

Insurers may also have to face a certain amount of consumer resistance to the new technology, as a recent article in the UK Daily Telegraph reveals.

The Telegraph article quotes Emma Carr of UK Big Brother Watch saying: "Forcing drivers to have a telematics device installed in their car, which is capable of recording and transmitting exactly where and when they are driving, is totally unacceptable.
"There is a clear risk that once the telematics device is installed drivers will lose total control over who has access to their data and how they will use it."

How insurers manage that data privacy risk will undoubtedly influence the take-up of telematics. However, Tower's SmartDriver app is evidence the New Zealand insurance industry is taking telematics seriously.


Undoubtedly, more insurers will follow in Tower's tracks.

Detailed risk-rating technology may eventually extend into other insurance sectors such as health or life: after all, most people think their life expectancy is above average.

Read the full telematics report here: