Traditionally, car insurance companies have used a combination of proxies, such as gender, age, marital status and occupation, to determine the risk each driver presents, pricing their premiums accordingly. While the algorithms and data models used by car insurers are extremely sophisticated and the statistics on which they are based are broadly accurate, this strategy means that insurance companies have no way of distinguishing between diligent drivers and their reckless counterparts, who can often quite literally be accidents waiting to happen.

Step forward in-car telematics technology: a method of remotely monitoring a driver’s skill on the road. A number of factors have prompted an increasing number of car insurers to consider this option as a means of better understanding the risk of each and every driver they are asked to cover. With the price of the technology having fallen significantly in recent years, new legislation and a sharp increase in insurance premiums mean car insurers have little choice but to explore advanced monitoring technologies.

Car insurance: a risky business

According to Linden Holliday, CEO of UK-based MyDrive Solutions, a company that provides insurers with the ability to understand the skill levels of car drivers, the key driver behind the increased use of in-car telematics has been the onslaught of technology.

"It has now become much more available at the right price point," he says. "Obviously, with the telematics approach, there are costs involved that insurance companies simply didn’t have previously – the costs of the physical hardware, crunching the data and having the technology professionally installed. But the cost of both the physical hardware and the data transmissions has significantly come down."

On top of this, insurance premiums have gone through the roof over the past five years, largely due to an increase in organised crime in the insurance space, and from 2012 changes in legislation mean that insurers will no longer be able to use gender as a pricing proxy. "It also seems highly likely that in the not too distant future – possibly within the next two years – it will become illegal to use age as well," Holliday adds.

"From 2012 changes in legislation mean that insurers will no longer be able to use gender as a pricing proxy."

Insurance companies have, therefore, started racking their brains to come up with new ways of measuring the risk presented to them by drivers. "They want to be able to monitor drivers and price them according to the risk they are actually presenting," Holliday clarifies. "Now they understand that there is a better way to do this, they’re starting to deploy it. Some drivers simply shouldn’t be insured. Previously there was no way that insurance companies could say that; now they can."

How does in-car telematics work?

MyDrive, which Holliday defines as a driver behaviour capability company, is one business that is using in-car telematics technology to help insurance companies accurately measure the risk presented by drivers. In technical terms, the company uses an electronic box to monitor driving behaviour second by second and deploys industry-leading analysis to determine exactly how capable a driver is, in real time, on an ongoing basis.

But Holliday is keen to emphasise that MyDrive doesn’t simply do ‘telematics-based insurance’: "We don’t care about the technology or the data transmission; we want to give insurance companies an understanding of what the driver does when he’s behind the wheel. So we invest most of our energy, time and money into demonstrating that we have world-class capabilities in profiling the behaviour of drivers."

"Some drivers simply shouldn’t be insured. Previously there was no way that insurance companies could say that; now, thanks to i-car telematics, they can."

High data volumes are absolutely crucial to MyDrive. "We’ve invested a huge amount of money into developing an algorithm that allows you to take a massive amount of data, make sense of it and output it as something that makes sense to insurance companies," Holliday explains. In stark contrast to its competitors, who take measurements every 30 seconds, MyDrive currently measures driver behaviour every second. In the next two to three years this will be increasing to five times per second.

The company also contextualises driver behaviour against an underlying digital map. "There’s no point understanding what a driver does if you don’t know exactly where that driver is," Holliday remarks.

The psychology of driving

MyDrive, therefore, has the ability to compile a comprehensive series of data that shows an insurance company precisely how good any particular driver is. "We take so much data and we see drivers do things so many times that we get a very clear picture of what is unusual for any particular driver," says Holliday. This is then averaged out and converted into something car insurers are able to understand. "We do average it out, but we’re averaging out actual behaviour, not things drivers have no control over, such as gender, age and occupation; you can control the way you drive."

Well, at least to a certain extent. Interestingly, this kind of technology is initially being deployed in the young driver market because young drivers have less control over their driving than many people realise. "Driving is the most stressful thing you ever do," Holliday notes. "As a species, we’re not designed to process data at 70mph so a lot of the signals the brain takes in are discarded. The reason young people have more accidents is because they don’t yet have the experience of dealing with that volume of data."

"As a species, we’re not designed to process data at 70mph. Young people have more accidents because they don’t yet have the experience of dealing with that volume of data."

This is why MyDrive has enlisted the help of both university psychologists and members of the Royal Society for the Prevention of Accidents (RoSPA), an advanced driver training organisation, to analyse their data. "Firstly, we need to understand driving psychology and, secondly, we need to know what good driving looks like," Holliday says. "That’s the only way to really understand the data."

Room for improvement

A welcome side effect of technologies such as that of MyDrive is the potential to improve the standard of driving across the UK. "We provide a level of data and analysis, which shows you exactly how you are driving and therefore allows us to help you improve it," Holliday explains. "At the moment, this is something unique we offer."

It’s a known fact that when you are under stress, your true character shines through; it’s also accepted that driving is the most stressful thing you will ever do. However, although this knowledge, on top of the understanding of key personality profiles, has been embedded in psychological academia for over 50 years, it is only now that technology companies are really beginning to use it both to make insurance policies fairer and potentially improve driving standards countrywide.