Responding to the House of Commons’ Transport Select Committee’s inquiry into the reasons why young drivers are at a higher risk of being involved in road traffic collisions, the black box insurer believes all 17 to 22-year-olds should have a telematics policy for a year after they pass their driving test

Telematics provider Carrot Insurance is lobbying the government to reduce or remove insurance premium tax (IPT) for young and new drivers who are using black box insurance policies – the insurer believes this type of “fiscal nudge” will minimise the risk of this demographic being involved in road traffic collisions and “enable the government to make a major contribution to road safety”.

Carrot Insurance, part of UK-based global telematics business Trak Global Group, has responded to the House of Commons’ Transport Select Committee’s inquiry into the reasons why young and novice drivers are at a higher risk of being involved in road traffic accidents and what the government can do to reduce these risks.

The firm’s primary solution to the government’s posed question is to incentivise new drivers aged between 17 and 22 to have a telematics insurance policy for at least their first year on the road in order to instil and reinforce good driving habits. Following this, novice drivers would then have the choice of whether to remain with a telematics-based policy, or whether to opt for a more traditional motor insurance product.

The incentive for this, according to Carrot Insurance, should be a reduction or removal of IPT for this specific demographic.

Norrie Erwin, the company’s managing director, explained: “The average premium for 17 to 22 year-old drivers is nearly £1,449 annually, compared to the national average of approximately £471, meaning young drivers pay more than double the amount of IPT than, say, their parents.

“In 2016, Carrot customers paid well over £2m in IPT, but on average the company saves insurers over £5m each year in lower claims costs because Carrot drivers have fewer accidents than those who don’t use [the] telematics insurance product.

“If you include taxpayer savings that accrue from making less use of the emergency services, healthcare and rehabilitation, the multiplier effect of reduced accidents adds up to many millions of pounds of benefit from Carrot alone.

“Giving a fiscal nudge to encourage young people to opt for telematics-based car insurance will enable the government to make a major contribution to road safety.”

Telematic advantages

Within its submission, Carrot Insurance uses its own customer data to demonstrate why telematic insurance is so beneficial in reinforcing good driving behaviours – it attributes this to its “carrot, not stick” approach, which incentivises positive driving habits that are then “sustained into adult driving careers”.

The company’s data reveals:

  • A 42% reduction in the number of accidents among its customer base compared to non-telematics insurance customers of the same age group.
  • A 7% decline in Carrot’s insurer partners’ combined operating ratios (COR), attributed to the fact that Carrot’s policyholders make less claims through having less accidents.
  • Driver behaviour is scored using a green, amber and red system on Carrot’s system, calculated by three main factors: speed, smoothness and usage. Policyholders are only at risk of cancellation should they get two consecutive red weeks, or four in the aggregate over the policy period. Carrot found that 64% of its drivers maintain a positive score throughout the lifetime of their policy and only 794 (5.5%) policyholders aged between 17 and 25 are speeding/driving recklessly.
  • In 2019, Carrot’s team made 11,893 interventions to customers. Of these, 74% of drivers contacted improved their driving behaviour and received no further warnings.

Erwin continued: “Telematics insurance is proven to reduce accidents and improve driver behaviour. In our evidence to MPs, we showed that Carrot has overseen a 42% reduction in the number of accidents among our customer base compared to customers of the same age group on conventional policies.

“For every two-point uptick in driver scoring across the Carrot portfolio, loss ratios improve by 14%. The improvement in loss ratios has made this segment of the insurance market profitable for insurers again, creating more insurance choice and lower premiums for young drivers.

“Customers who regularly check their driving behaviour on their Carrot app are 39% less likely to have an accident, so the rewards programme incentivises customers to check their status, and by doing so frequently, they drive better.”

Future benefits

Although Carrot’s intervention is targeted at younger drivers, Erwin added that this approach will have a broader ripple effect as these individuals grow and become more experienced drivers.

“The fact is that drivers who learn to drive safely on the roads with our help go on to be better drivers in later life. So, the benefits of telematics insurance reach well beyond the young and novice driver category,” he explained.

“Industry and government need to work in partnership to educate the public about the benefits of telematics beyond the premium reduction. Awareness of telematics has improved with increased usage telematics, but too many people still associate ‘telematics’ with curfews, limited mileage, being tracked and removal of privacy.

“There are proven road safety benefits from the technology. We believe that young and novice drivers who take out our installed black box product for their first years driving keep their behavioural habits as they become more experienced; once a good driver, always a good driver, as it were.

“We believe the benefits are so compelling that new drivers should be incentivised to utilise at least their first year’s driving through year with a telematics company before being given the choice to move on to a regular insurance product.”