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Car Insurance - A Brave New World?
By Michael Masters
A leading UK insurance company has beaten the government in the race to introduce road pricing by launching a car insurance policy which takes account not only of the factors normaly used in calculating insurance premiums such as age, gender, driving experience, type of vehicle etc. but also when, where and how much you drive.
The scheme, which has been on trial for two years is based on statistics which show that individual driving habits can have a considerable effect on the risk of having an accident. For example driving during the morning rush hour increases this risk by 50% over driving on the same roads in the evenings or at weekends. Motorway driving on the other hand is 10 times safer than driving on low-speed urban roads. You won't be surprised to hear that the statistics also show that the more serious accidents are likely to happen at night.
The policy, which charges a fixed monthly sum plus a per mile charge that can range from as little as 1p to as much as £1 for a young driver using their car at night, relies on the information provided by a
black box device fitted to the vehicle. This uses GPS technology to record how often, when and where you drive. The information provided by the device is used to produce a monthly pay-as-you-go itemised bill showing the premium charged for journeys made during the month.
Norwich Union, the company behind the scheme claim that this new kind of policy gives drivers greater choice and is a fairer way of calculating premiums because it is closely tailored to them and their driving habits. They also say that if you drive less than 8,000 miles a year you may benefit from switching to this new policy. Given the very wide range of costs per mile, particularly for young drivers however, this will depend very much on the type of driving you do. If you are a low mileage off peak motorway user you will no doubt benefit financially but how many others will do so remains to be seen. Norwich Union are expecting the policy to be a big success but independent surveys have shown that there is considerable resistance from drivers to having their activities scrutinised in this way.
Apart from the civil liberties concerns, there are other disadvantages to this sort of policy.
Drivers will not know how much their insurance has cost them, unless their driving patterns remain constant from month to month, until they get their bill.
If this type of policy is copied by other insurers, there is potential for a proliferation of different charging rates for different use of your car leading to confusion over the comparative costs of policies from different companies.
Using the example of mobile phones, how many people know if they have the best deal from their own network supplier let alone whether another supplier would be cheaper? There are hundreds if not thousands of different tariff combinations to check for any real comparison of costs to be valid. Norwich Union have already started to confuse matters here by offering 100 free off-peak miles per month to young drivers.
The switch to monthly billing is also a shrewd move. Annual bills allow insurance companies to increase premiums once a year and any increase is quickly apparent, a rolling monthly policy on the other hand, will allow more frequent opportunities to adjust the price and as the increases will be smaller, they will be more acceptable. As insurance companies would be free to make such adjustments at any time, you could switch from one company after a rise in premium, only to be hit by an increase from the new insurance provider after the switch has been made. You only have to look at the increases in energy bills to see how this works.
The introduction of this new type of policy will allow some drivers to benefit if they are not concerned about having their activities tracked and recorded but for others, particularly those who are forced to use the 'wrong' type of road at the 'wrong' time of the day it is a definitely not worth switching.
As always with car insurance you should make sure you check that the policy is right for you and compare the price of car insurance cover from several providers before committing yourself. Above all keep track of your costs and check them at regular intervals.
Michael Masters writes for car insurance comparison site kwikfindcarinsurance.com who provide information on car insurance issues and a quotation finding service for UK and US residents.
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