Tax-breaks for telematics?

Telematics insurance has become a tried and trusted way for young drivers to cut the cost of car insurance.

With this ‘black box’ cover, which uses satellite technology to track the car, premiums are based more on actual driver performance than the standard set of assumptions about age, location and type of car (although they remain important).

And it could be about to get even more cost-effective if calls to cut insurance premium tax (IPT) gain traction.

Tax cut incentive

The idea for a cut in insurance premium tax (IPT) for telematics policies comes from the Road Safety Foundation (RSF), which argues a reduction would create an additional 250,000 telematics policies for the under-25s.

The RSF estimates that encouraging uptake on telematics could prevent as many as 2,500 road crash injuries a year, resulting in a net saving of £500 million on NHS bills and long-term care services.

Ed Rochfort (right), product director at Carrot Car Insurance, said: “IPT is a regressive form of tax, unfairly penalising young drivers. Their inexperience leads to higher premiums, and in turn a higher burden of tax (6.5%). These unduly weighted levies have a real fiscal impact on young drivers – money that could instead be put to additional driving lessons to ensure their safety and that of other road users.”

But why should young drivers get tax breaks ahead

Young driver blues

Young male drivers pay more for car insurance than any other demographic (even though gender-based pricing is against European law). The average cost of an annual policy here comes in at £1,129 – largely because teenage men are the most high-risk road users.

And although drivers aged between 17 and 19 make up just 1.5% of the total number of licensed drivers in the UK, they account for 12% of people who are killed or injured in road accidents.

Unsurprising, then, that road crashes are the leading cause of death and life changing injury in young people.

And while the government continues to stall over the implementation of graduated driver licensing, telematics offers a way to improve young driver performance and road safety by effectively combining practical feedback on their driving behaviour with the financial incentive of lower premiums.

How telematics can help

Crispin Moger (left), CEO at Marmalade, provider of insurance and cars for young drivers, supports the RSF’s demand to cut tax on telematics policies, believing that premiums should be fair and accurately reflect the risk of each driver.

Crispin said: “It is important that drivers of all ages are charged a fair rate for insurance that reflects the risk that they pose. The biggest issue when it comes to insuring young drivers is their lack of experience and a perceived propensity to take risks.

“Telematics solutions are proven to alleviate these problems, helping young drivers to experience the freedom and enjoyment that driving can bring, while reducing the risks to their safety and wellbeing.

“Simply by having the black box in the car makes our young customers think more carefully about how they are driving. Many have told us how telematics has helped to avoid peer pressure – when their friends urge them to go faster, they can blame the black box for not being able to do so – removing a huge and potentially very dangerous pressure from their young shoulders. “

What are your views? Should young drivers be exempt from insurance premium tax if they take out a telematics policy? Let us know in the box below…

Tax-breaks for telematics?