In 2012 drivers paid an average of 973 pounds a year in auto insurance costs according to the Automobile Association. However for many drivers their premiums may actually drop in the near future, provided that they drive safely.
Black box monitoring technology now allows insurance companies to track and analyze the actual driving behaviour of its customers. It allows the insurance company to know how frequently, at what time, how fast and how carefully their customers drive, if they have the black box installed in their car. Those drivers who are less likely to have an accident are rewarded with lower insurance premiums.
While this does create a fairer way to calculate insurance premiums than the previous demographic based system there are also disadvantages. Here we will look at the major advantages and disadvantages of black box insurance.
Safer drivers rewarded
Arguably the greatest advantage to black box insurance is that it makes the insurance premiums fairer. With black box insurance drivers insurance premiums are charged according to their actual driving behaviour rather than the demographic group that they belong to. This means that a young, male driver whose auto insurance premiums would in the past be very high, can reduce these costs if he is a safe driver. At the same time an older, female driver who drives frequently and dangerously will not be able to “free-ride” the system simply on the basis of the demographic group she is in.
Better for society
It is estimated that in the UK, five people die on the roads each day. The majority of these deaths would be preventable through safer driving. When you add in the estimated 18 billion pounds a year in economic costs attributed to road accidents you can see that anything that would encourage people to drive more safely would be of great benefit to society. With black box insurance drivers have a financial incentive to drive safely at all times. Because they are constantly being monitored their driving will improve and this will decrease road accidents.
Black box monitoring technology also helps to prevent theft and enables the tracking of automobiles. With GPS technology it is possible for insurance companies to determine the current location of a stolen automobile. It is even possible to remotely disengage the ignition to make the car immobile. This acts as a deterrent to stealing cars with black box technology, as well as making it easier to locate cars that have been stolen. In turn this reduces auto theft insurance premiums because of reduced claims.
Helps with claims management
The black box in the car includes a huge amount of information, which can be very useful in the case of a car accident. For example it can show whether the driver was speeding or driving dangerously prior to the accident. This can increase the speed and accuracy with which car insurance claims are managed.
More profitable for insurance companies
Black box insurance is also more profitable for the insurance companies. With black box insurance they are charging premiums which more accurately reflect the probability that they will be claimed. This means that they can charge higher premiums to drivers which actually pose a higher risk of an accident. Also because they can reward drivers who are safer with lower premiums, they can attract more of these customers and thus increase market share and overall revenues.
Dangerous drivers may opt out
At the moment the installation of black box monitoring technology is voluntary. This can cause a problem however in that good drivers will receive the benefits of lowered premiums but bad drivers may not be penalized to the same degree. For good drivers there is a financial incentive to have their behaviour monitored and so they are likely to opt into a black box insurance system.
However for bad drivers that may be part of a low premium demographic, there is an incentive not to have the technology used. Insurance companies need to be able to match their lowered premiums for the good drivers by similarly increasing the premiums for the bad drivers. If they only lower their premiums, then overall running a black box system will be more expensive for insurance companies.
Technology and monitoring costs may outweigh potential revenues
The installation and monitoring of black boxes has a cost. If this cost exceeds the potential savings and increased revenue that results from that technology, then it may not be in the best interests of insurance companies to have the monitoring devices installed. This is particularly true if the scenario mentioned above occurs, where bad drivers choose not to use the system and are consequently not accurately penalized.
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