The AA is the latest insurance firm to introduce so-called ‘pay-as-you-drive’ car insurance that involves fitting cars with a ‘black box’ device that allows the insurer to monitor driver behaviour and adjust the price of their policy accordingly. You pay the premium monthly so that adjustments can be made well before the annual policy renewal.
Similar schemes were piloted, and subsequently shelved, by insurers More Than and Aviva, the latter citing unsustainable costs as the reason for withdrawing the service, which had been taken up by over 10,000 customers.
But with the European Court of Justice (ECJ) ruling on gender discrimination laws coming into effect later this year, insurers are looking at new ways to differentiate between drivers – and this in-car technology could be the answer.
The ECJ ruling means insurers will no longer be allowed to charge women less for their motor insurance, despite the fact that, statistically, they are less likely to be involved in an accident.
Peter Harrison, car insurance expert at MoneySupermarket, said: “We already know that insurers will not be able to discriminate between drivers on the basis of gender from 20 December 2012, and there has been talk in Europe of outlawing discrimination on the basis of age. But this sort of technology allows insurers to monitor real-time driving performance and price accordingly. We think this could be the future for motor insurance pricing.”
The development coincides with a recent insurance summit hosted by David Cameron, which focused on reducing car insurance premiums by putting an end to the UK’s ‘compensation culture’.
Insurers claim exaggerated, spurious and fraudulent claims cost £2 billion each year.
How does this technology work?
Anyone that enrols in a driver monitoring scheme will have their car fitted with a small electronic device that uses the same underlying technology as satellite navigation systems. The AA says its ‘Drivesafe Box’ is no bigger than a pack of playing cards and can measure speed, distance travelled and the time of day or night that the driver is on the road.
Such devices can also work out the types of roads that drivers use and can assess their driving style by monitoring braking and cornering. This may all sound a bit ‘Big Brother’ but, runs the argument, if you consider yourself a safe and considerate driver, you should have nothing to worry about – and, potentially, something to gain.
Furthermore, the devices are seen as a way to enhance road safety by promoting and encouraging better driving rather than by simply punishing those who may be more erratic behind the wheel.
The cost of the box and its installation is included in the price of the policy and the AA suggests that ‘safer’ drivers could see their premiums drop in as little as just 60 days.
However, drivers that are deemed to be less safe, such as those who regularly exceed speed limits, corner sharply, brake heavily and do a lot of night-time driving, could actually see an increase in the cost of their cover. Any drivers who choose to fit their car with one of these devices will be able to log on to a secure website and find out how they are performing in each of the four categories monitored by insurers: speed, traffic anticipation, cornering and driving times. Separate reports are provided for daily and monthly mileages and individual journey lengths.
In a bid to improve driving standards the AA system also offers tips on driving styles and gives advice on how to improve driver scores, improve driving ability and, ultimately, bring down the cost of insurance.
Drivers can also input additional information about their car to trigger alerts on service intervals and MOT test dates, which should ensure the car they are driving is safer too.
Cutting the cost of cover
‘Pay-as-you-drive’ or telematic insurance policies were initially seen as a way to bring down the cost of car insurance for young drivers by monitoring, and hopefully improving, their driving performance.
But with rising insurance costs (recent figures show that premiums have risen by 20% in the last two years, despite accident rates declining year-on-year since 2005), schemes such as ‘DriveSafe’ are being rolled out to drivers of all ages and ability.
The AA is not the only insurer offering this type of cover as providers such as The Co-Operative, Coverbox, eCar Insurance and Insure the Box all offer telematic insurance policies.
However, policies differ from one insurer to the next so it is always worth looking into what each provider has to offer before taking out cover. For instance, while the AA say that premium reductions can come into effect within 60 days, Insure the Box will only amend the cost once they have amassed a full year’s worth of your driving data.
On the other hand, if you are deemed to be a safer driver, Insure the Box may offer you the chance to earn bonus miles, which means that you will be able to increase the annual mileage on your policy at no extra cost.
Telematic insurance policies may prove to be a good way for drivers to lower premium prices, but there are a number of other ways in which drivers can cut the cost of their cover.
One of the easiest ways to reduce the price of your car insurance is to shop around to find the cheapest quote. MoneySupermarket’s comparison tool instantly searches over 100 insurers to give you the best deals.
Another simple way to cut the cost is increase the voluntary excess on the policy (the amount you must pay towards the cost of any claim). But be aware that this tactic only works up to a point. Moving from a £500 and £1,000 voluntary excess might not actually reduce your premium by a significant amount.
Younger or new drivers can take an advanced driving course or place an older driver on the policy to benefit from their driving experience. However, when placing another driver on the policy, be sure they are not named as the main driver if this is not the case. This is known as ‘fronting’ and is actually against the law.
Other ways to reduce premium prices include lowering your annual mileage, adding extra security and paying annually instead of monthly.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.