Think inside the box to reduce premiums

SOARING car insurance costs have forced thousands of drivers off the road and made a sizeable dent in the pockets of millions over the last two years. Young drivers in particular have been hit by huge premium increases, making insurance unaffordable for many and resulting in some driving without cover, posing a risk to other road users.

But there’s a glimmer of light at the end of the tunnel, thanks to new technology aimed at helping careful drivers cut their premiums.

Black box technology, which some claim can reduce insurance costs by up to a fifth within a year, has been pioneered primarily by niche insurers over the last two years. But now insurance giant Direct Line, part of RBS, has revealed that it is trialling the technology in a bid to attract young drivers deterred by rising costs.

So what exactly are they doing? And can it really make a difference to your insurance costs?

The technology works by monitoring driving behaviour through information transmitted to the insurer from a box fitted behind a car’s dashboard. The data sent to the insurer includes mileage, the time of driving, duration and the way in which it is driven. The box also records movements such as sudden braking and erratic cornering and the information is then used to help set the driver’s premiums for the next year.

The idea is to reward careful driving – and, in theory, a reduced likelihood of having to claim due to accident – with lower premiums. However the reverse also applies, with irresponsible drivers suffering premium hikes.

The technology is aimed particularly at young drivers who have suffered the biggest increases in car insurance premiums in recent years. Among the leaders in the telematics market is Insurethebox, which launched in May 2010.

Insurethebox customers initially buy a unit of 6,000 miles insurance, which can be added to if necessary. The insurer instals a free ClearBox behind the dashboard to monitor the customer’s driving and those marked positively against five driving parameters can earn up to 100 extra miles a month.

The information collected can also be viewed by the driver so they can see how many extra miles they have earned and work out if they could accumulate more.

Two-thirds of policyholders who renewed their cover in July and August this year had their premiums cut from the previous 12 months, according to Insurethebox. Savings reached £800 a year, with an average reduction of £498, according to the firm, which said the figures did not include any bonus miles given.

Mike Brockman, chief executive of Insurethebox, said: “Most of our policyholders have risen to the challenge of telematics and are making a big effort to drive safely, and those who do so are finding that their insurance is getting cheaper.

“Our experience has absolutely justified our confidence in the concept. There are, of course, many other benefits to society such as safer roads and lower CO2 emissions as people drive more sensibly.”

Another insurer taking the black box route is the Co-operative. Earlier this year it introduced a pay-as-you-go car insurance policy for drivers aged 17 to 25, based on Smartbox data telling the insurer about the driver’s braking and acceleration, cornering, speed and time of driving. Drivers are assessed every three months and offered premium discounts of up to 11 per cent of the annual cost if they demonstrate responsible driving behaviour.

Conversely, those not driving carefully could see premiums rise by up to 15 per cent of the initial policy cost. Drivers found to be consistently above the speed limit may even have their policies cancelled.

Coverbox and Intelligent Marmalade are among the other insurers to have adopted driving tracker systems, while Direct Line is the latest to launch a trial and AA Insurance is looking at introducing black box technology for car insurance customers next year.

Andy Goldby, director of motor underwriting and pricing at Direct Line said: “Direct Line is committed to supporting young drivers and this analysis of driver behaviours and attitudes will provide us with in-depth information enabling us to put together a robust and long-term consumer offering. It is essential to get this right and not base it on a kneejerk reaction to a changing market place.”

These firms aren’t the pioneers of the systems in the car insurance market, however. Aviva (then Norwich Union) launched a similar scheme five years ago before withdrawing it after three years due to low take-up. This time around, however, the rapid rise in car insurance premiums over the last two years means demand is proving far greater and more companies are considering introducing sophisticated pricing systems.

As with everything in life, however, there are potential drawbacks to bear in mind. The telematics approach to pricing means that while careful drivers save costs, they are effectively cross-subsidised by the less careful customers.

While two-thirds of Insurethebox customers saw their premiums reduced on renewal, those who were judged to have taken less care with their driving saw costs increase after the first year.

Brockman said: “If everyone received the same favourable terms on renewal then good motorists would be subsidising less responsible road users. We are empowering car owners to control their costs – as long as they buy into our approach.”

For many young drivers who consider themselves careful motorists, black box technology could prove a lifeline. For others, such as those who drive thousands of miles a month, drivers aged in their fifties and sixties (typically offered the lowest premiums) and regular car users in rural areas (where less predictable roads can make for erratic driving patterns), the onus is still on shopping around for the best insurance deal on the market.

Younger drivers hardest hit

The cost of the average car insurance policy jumped by 40 per cent in the year to March and, while premiums fell marginally over the summer, experts predict a resumption of the upward trend next year. The average of the most competitive premiums – the “shoparound” price calculated by AA Insurance – has more than doubled in the last five years, rising from £450 in October 2006 to an average of £921 last month.

And young drivers have borne the brunt of the increases. In the first three months of this year male drivers aged between 17 and 22 were asked to pay an average annual premium of £3,052, the AA revealed. That had fallen to £2,977 by the end of last month, a figure still more than double the premiums quoted to drivers aged 23 to 29. Research this year by What Car? magazine uncovered the case of a 25-year-old man whose insurance rose by 77 per cent to £1,520 a year, more than his car was worth. It also found an 18-year-old woman who was quoted a premium of £4,250 for her Ford Fiesta, up more than half from the previous year.