Is Pay-As-You-Drive the Future of Car Insurance?

Posted & filed under Car Insurance News.

Aviva famously launched its ‘pay-as-you-drive’ product in 2005, but later pulled out of the game after lacklustre sales.   PAYD, or ‘Black Box’ insurance, as it uses a device similar to an aeroplane’s black box recorder to record details about distance travelled and driving style, is now becoming more popular thanks in part to the efforts of a company called Insure The Box.

Nine months after launching their own telematics-based vehicle insurance the company is on track to sell another 60,000 policies before the end of 2011, and the new venture is already showing profits.   Founder Mike Brockman says the venture has not been without its challenges.

“The big conundrum was how you factor in the expense of the box and infrastructure to one of the most competitive products in the world, in the most competitive market in the world, and still make money when everyone else was making losses without that cost.”

How Telematics Works

Telematics works on a ‘carrot, not a stick’ philosophy, according to Brockman. Instead of penalising customers for claiming, it rewards users of the system for good driving.   This includes getting decent gas mileage for your model of vehicle by not riding the accelerator, not riding the clutch, not mounting curbs, etc.   These are all little things that can result in damage to a vehicle, but which are easily avoidable.

The plan starts with a basic annual mileage of 6,000 – that’s what you get for paying your premium and having the black box installed in your car. You get bonuses in chunks of 100 miles for good driving, as mentioned above, and you can top it up any time online using your credit card – much like a pre-paid mobile phone.

The benefits are obvious for those who only drive once or twice a week, and don’t want to pay for a full service insurance policy.   With the recent rise in motor vehicle insurance premiums, this can represent a significant saving to those who are considered ‘low use’ drivers.

Brockman says that the success of the company is based on simply thinking about what customers wanted out of insurance.   Instead of simply designing a product that suits the insurance industry, Insure The Box worked out what it is people want, and where they feel they’re paying too much.   They also take a novel approach to curing the systemic causes of insurance claims, especially in younger drivers.

“We have no restrictions; for example, we don’t stop young people from driving late at night because that’s when most young people want to drive. If you design a policy that restricts people from doing what they want to do, they won’t buy it. It’s all about educating safe driving, which, at the younger end, is a responsible attitude to have.”