Is “Black Box” Insurance The Future of Car Insurance?

“Black Box Car Insurance.” “Telematic Car Insurance.” “Usage-Based Car Insurance.” “Pay As You Drive Car Insurance. These are all different names for essentially the same thing. Black box insurance is a type of insurance that tracks a driver’s habits and rewards them for safe driving habits. Just like an airplane’s black box collects and stores data about the plane, a black box policy is able to collect data about a driver’s driving habits. As opposed to traditional safe driver discounts, which takes a look at a driver’s past activities (by looking at the driver’s driving record), it takes a look at that driver’s current activities (by tracking how they are currently driving). By using a plugged in device (called a telematic device), syncing to OnStar, or by using downloaded software, the insurance company is able to collect and analyze data about the customer’s driving habits. It is able to track data like speed, braking habits, time of day driving, etc. If the driver is found to have safe driving habits, their rates go down. Currently, if a driver is not found to have safe driving habits, nothing happens. No company currently offering a black box car insurance option will penalize a driver for poor driving habits.

Why Black Box Insurance is the Future of Car Insurance

It’s Already Bigger Than You Think Even if you haven’t heard of these black box policies, they’re already gaining quite a bit of traction. Here are a couple statistics found by Towers Watson (an HR consulting & risk management company):

• 60% of the personal car insurance market in the U.S. is covered by companies that offer some sort of a usage-based insurance program. 
• 10 of the top 25 insurance companies in the country have gone public with usage-based insurance programs, including Progressive, Liberty Mutual, State Farm, and Allstate. In addition, 6 of the top 25 are currently piloting programs.

Both of those statistics were found over a year ago. That means that, as of a year ago, black box policies were already offered by over half of the top insurance providers in the U.S. As these large insurance providers continue to offer these options, the other providers will feel that they will also need to introduce similar offerings in order to continue to compete. As the larger providers make this a normal part of their programs, mid-sized carriers will feel the heat to offer similar programs. Car Insurance Companies Like It Currently, all companies that offer a black box, or usage-based program, offers it on an optional basis. Customers are allowed to choose whether or not they want to opt-in to the usage-based option. But, black box insurance saves car insurance companies a lot of money. As they are better able to pick out and insure safe drivers, they pay out less money in insurance claims. As more people strive to receive these safe driver discounts, their driving habits improve. Again, this saves the insurance providers a lot of money in insurance claims. So, even though these usage-based car insurance policies are currently offered on an optional basis, we may begin to see that change. As car insurance companies continue to save large amounts of money by implementing these programs, odds are we may see some of them turn them into required programs to track their customer’s driving habits. Drivers Like It Car insurance companies aren’t the only ones who save big on black box insurance policies. Because car insurance companies save so much money with these black box policies, they want to make sure to incentivize their customers to use these policies. So, they pass on huge savings to their customers if they sign up for these policies and are able to prove their safe driving habits. 92% of drivers are in favor of prices being decided by the way that they drive, and 57% of drivers expect to switch to black box based car insurance by 2017 (research commissioned by GoCompare). So, these telematic car insurance policies are not only growing in popularity with the car insurance companies. Their customers are also catching on and in favor of these types of usage-based policies. It Coincides with Society’s Trends As technology continues to evolve, users expect more of it. And they expect every aspect of their lives to become more technologically based. Car insurance is no exception. As technology advances, people will want more technologically advanced car insurance options than what they’ve been provided with in the past. And that is where black box insurance policies come in. Instead of just taking a look at customer’s driving records and making assumptions, they are able to use technology to allow them to make proper decisions off of hard data. That is what people are starting to want, and will continue to want in the future. Another societal trend we are seeing? People driving less. With gas prices continually rising, as well as people becoming more environmentally-minded, we are seeing more people riding bikes, using public transportation, carpooling, working from home, and shopping online. And these policies reward you for driving less. On top of the safe-driving discounts that drivers can receive, many companies also offer low mileage discounts to people who drive under a certain amount of miles. The theory behind this is that, the less someone is driving, the less likely they are to get in an accident. The less you drive, the less you pay. One company even offers up to 54% savings for drivers who report low miles driven. So, as more and more people are making the choice to drive less, they will like the rewards that black box policies provide them with for that decision.

Black Box Insurance Policies Are Here To Stay

Whether you are currently signed up for a black box policy, or this is the first you’ve ever heard of them, of one thing you can be certain: black box policies definitely aren’t going anywhere. Between the growth they’ve already seen, how much insurance companies and their customers like these policies, and how well they work with our current trends, I think it’s safe to say that black box policies are the future of the insurance industry. Nicole covers the news and cheap car insurance sections of the blog on CheapInsurance.com.