Is a black box the solution to rising car insurance?

At a time when household budgets are already stretched, most drivers are desperate to see the acceleration of car insurance premiums put into reverse.

While the government and regulators are trying to tackle some of the bigger underlying causes, there remains a short-term challenge for insurers. What can they do to help make their products more affordable when their customers need to be cut some slack?

The industry has responded in a number of ways. Some have scrapped benefits, like free courtesy cars for those whose vehicle is in the garage after a scrape. Others have introduced extra charges, such as fees for sending out duplicate certificates.

But perhaps the most interesting innovation has been the development of so-called ‘telematics’ – insurance policies that are based on each policyholder’s actual driving practices.

The little black box

Telematics work by installing black boxes in your car. Using GPS, this reports back to the insurer at regular intervals about how you’re driving. Factors that are taken into consideration are the times that you drive, the speed you drive at, how fast you accelerate and brake, and even how well you corner.

Such systems are used by commercial haulage and transport companies as a means of ensuring their staff are driving responsibly. But they’ve only recently started to gain traction in the insurance industry.

At first they were targeted at younger drivers, who suffer most acutely from high car insurance premiums. Now, they’re being offered to anyone who’s interested.

The benefit of telematics is that it encourages good driving. If you drive poorly, your premiums may rise, so the financial incentive to slow down or stay home late at night increases.

Will you take up telematics?

But the response you’ll get from most people is that telematics sounds a bit Big Brother. The idea that you might get financially penalised for absent-mindedly slipping over the speed limit makes people nervous.

And, although most insurers say you wouldn’t get punished for occasional misdemeanours, drivers understandably feel vulnerable with all that information in their insurer’s hands.

The documents that accompany some of the new telematics based insurance policies don’t help matters either. Although most policies infer that you’ll be rewarded for good driving (rather than penalised for bad) some policies are worded loosely enough as to leave plenty of doubt as to how it’ll work in practice.

So if these ‘black boxes’ catch on, they certainly have the potential to change the way we drive as a nation. But until the industry starts to better define how your data will be used, would you be willing to get one installed?