Telematics – insights into consumer expectations can aid insurers' compliance with financial services regime

Out-Law Analysis | 30 Sep 2015 | 10:17 am | 4 min. read

FOCUS: A study carried out earlier this year offers some useful insight into the expectations consumers have of how their telematics data might be used.

The research can help insurers align the way they use that data not just with the requirements of data protection law but with the financial services rules they are subject to.

Financial services firms' use of data in general has been a long-standing area of interest to regulators and with the Financial Conduct Authority set to launch a market study into insurers' use of big data it can be expected that telematics initiatives will come in for increasing scrutiny.

The uSwitch research

Telematics data in the car insurance market is generated by 'black box' recorders fitted in vehicles or available via special mobile apps and is the information used to build up a profile of drivers' behaviour. It includes data on the speed they drive at, their braking and acceleration. The data helps insurers to personalise motor insurance premiums and reward good driving.

In April, UK-based price comparison website uSwitch published the results of a consumer study it conducted into British consumers' awareness and attitude towards telematics-based car insurance policies.

The research, which involved a survey of more than 1,000 UK consumers in March, showed good awareness of telematics or 'black box' car insurance among consumers, with 75% of respondents aware of such policies. However, just 3% said they currently have a telematics-based car insurance policy and fewer than half (45%) said they would definitely consider getting one.

Consumers who said they would not consider telematics-based policies raised concerns such as not being keen on being spied on, having their data sold to other companies and having their driving style monitored by insurers as the main reasons for their views. Nearly 1 in 10 respondents said they did not understand the technology sufficiently.

Of the consumers who said they would consider telematics-based car insurance policies, 70% said they would do so because they would "do anything" to reduce their premium. More than half of all the consumers surveyed said they would need to see minimum savings of figures between £50 and £150 on their annual premiums to consider taking out a telematics-based policy.

Nearly a third of respondents who said they would consider the technology said they would do so because they want to learn more about their driving and 23% said they think the technology would make them a better driver.

Perhaps the most revealing answers given by consumers came in response to uSwitch's question of what statements they believe are true about telematics-based car insurance.

More than half of consumers (58%) said they think telematics data is shared between insurers and 66% said they think it can be shared with the police in the event of an accident or crime. More than a third of respondents (35%) said they think they can use the telematics data specific to them when applying for insurance and seeking quotes from different insurers. Just 14% said they think they own the data collected about their driving.

How can the research help insurers with legal compliance?

Telematics data can constitute personal data, and therefore the processing and general handling of that data fall subject to data protection laws, on the basis that it records the activities of individual drivers, or a number of individuals.

The Association of British Insurers (ABI) has issued guidance to industry on how they can comply with the Data Protection Act when collecting and making use of telematics data.

The uSwitch research confirms that many consumers have privacy concerns when it comes to taking out telematics-based car insurance. It suggests, however, that most expect insurers to share telematics data between each other and that there is a willingness among many consumers to consider telematics policies, and consent to use and sharing of their data, if the financial incentives - potential premium savings - are big enough.

The study showed that many consumers expect to be able to share their telematics data with other insurers when looking to take out new policies, even though most do not believe they own that data. Proposed reforms to EU data protection laws could set new data portability requirements on insurers in this regard and so work to standardise telematics data and data sharing will be increasingly important and could help smooth data portability from both a compliance perspective and for consumers' benefit.

However, beyond data protection laws, and competition rules that could impact telematics data sharing arrangements, there are regulatory issues that arise that insurers need to be aware of that will influence how they use telematics data. They stem from conduct rules and consumer rights legislation.

UK financial services companies must abide by overarching principles that include treating customers fairly and acting in the best interests of their customers.

In its recent Risk Outlooks and Business Plans, the Financial Conduct Authority has made a connection between compliance with conduct rules and the use of data by firms. It has committed to conducting a market study of the use of big data by insurers this year and is expected to launch this initiative shortly. Hopefully its analysis will give consideration to the use of telematics data and practically what firms can do to ensure that they are complying with its high level rules.

Surveys such as the one commissioned by uSwitch provide both the regulator and telematics insurance providers with some evidence as to consumers' perspective in terms of what they believe to be use of telematics data that results in fair treatment.

The FCA and other regulators are behind regulation based on behavioural economics and regard consumer focus groups as helpful in informing their interpretation of the regulatory standards. There is good reason then for providers of telematics products to be at the centre of discussions regarding use of data and fair treatment. 

The more transparency there is around the extent to which greater use of data can result in good consumer outcomes the more likely it is that these broad standards will be interpreted in a way that supports rather than holds back future innovation.

John Salmon is a financial services and technology law expert at Pinsent Masons, the law firm behind Out-Law.com