Analysing the risk associated with young drivers and the use of telematics insurance

Abstract

Insurance market in Malta is continuously expanding and thus, it is important for insurance companies to take competitive advantage by pooling all their resources to develop new products with the aim of satisfying their current and future customers. Motor Insurance products can be classified under three headings; the third party only, third party fire & theft and the comprehensive cover. Minimum cover required by law is the third party cover, under such policy the insured is covered for his liability towards the third party. Similar to this cover one can purchase the third party fire & theft policy, the only difference, being that under this policy the insured is covered for any loss or damage caused to his vehicle as a result of fire or theft. The comprehensive cover is the most expensive cover compared to the other two because it offers a wider protection to the insured. The number of young people obtaining their driving licence is always increasing, while many of these young drivers end up facing difficulties when seeking motor insurance. The reason for this is that, most insurance companies are unwilling to insure young drivers because they represent a higher risk compared with other drivers. One example, of risky behaviours related with young drivers is the use of mobile phones while driving, thus, this reduces the level of concentration. Young drivers face a higher probability of death caused by road accidents caused mainly during night time hours especially during weekends. The main reason for this is, the high prevalence of drink-driving among young drivers. The fact that young drivers often opt to purchase a cheaper old cars as their first car, can also increase the risk as most of these cars they do not have modern safety such as airbags and automatic braking systems. The main purpose of this study is to examine the risks associated with young drivers and the use of telematics insurance, both in the UK insurance market and also in the Maltese insurance Market. Insurers are constantly facing competition among themselves and thus, it is important for them to introduce new products and reach new markets. Insurers are using telematics technology to provide affordable motor insurance to young drivers. Through this technology the insurer is able to obtain vital information relating to the driving patterns of the policyholders, thus, enabling a more accurate premium rating system. The opinions of young drivers and local insurers who currently do not offer a telematics-based insurance policy were researched and analysed.