Saturday, January 19, 2013

Car Insurance News: Trading Less Privacy for Lower Premiums

A car crash on Jagtvej in Copenhagen, Denmark.
A car crash on Jagtvej in Copenhagen, Denmark. (Photo credit: Wikipedia)
Faced with an unprecedented rise in car insurance claims, most insurance firms have been forced to increase the cost of their premiums. This has strangled the market for cheap car insurance policies and as a result pushed up the cost of motoring for many drivers. Typically, insurance providers' assess the cost of the driver's premium based on the characteristics of people in the same demographic - age and gender. Take for instance; single 18-year old men pay more for the same premium as compared to 50-year old married women. This skewed approach of generalization, albeit applied for ages, doesn't play any role in effecting behavioral change and tends to reinforce stereotypical perceptions. 

Better Alternative 

Technology has revolutionized many facets of the economy and it has yet to make its foray into the conservative insurance industry. Taunted by industry players as the cars' 'black box', technologists have developed innovative in-car tracking equipment that monitors drivers' behavior behind the wheel such as acceleration, braking, cornering speed and time of driving. The data obtained is then analyzed and used to calculate insurance premiums. This leads to insurance premiums that are value-based on the individual's driving habits rather than age or sex. 


According to recent research findings, drivers who use the technology are 20% less likely to get involved in a serious car accident than those with a standard insurance cover. This stems from the fact that drivers are more cautious while driving since they know their actions are being monitored. Furthermore, it assists insurers in knowing the exact mileage covered as opposed to depending on a driver's word. This is a crucial ingredient when calculating car insurance quotes, as it has been proven that cars with high mileages are more prone to accidents. In addition, for those who don't drive much they can get low mileage insurance covers which are tailor made depending on their needs. 

Eligibility for Discounts 

As this is a trade for less privacy for lower premiums, drivers who agree to install the monitoring device are eligible for discounts that rise up to 30%. Most insurance providers appreciate the fact that these devices have a profound impact in instilling behavioral change in drivers to be more careful leading to fewer occurrences of accidents. For instance, car insurance by offers attractive discounts for customers who adopt the technology saving them insurance costs in the long run. 

Privacy Concerns 

With many people increasingly being wary of the privacy concerns of this technology, it is important to debunk the myths first. Contrary to public perceptions, the device is not GPS enabled, hence the insurance provider cannot know your exact location. The firm may have information on the number of miles you drove, what time of day you drove and other driving data, but cannot track where you were. According to industry pundits, the technology should not be viewed in light of privacy concerns but its capacity to reduce accidents and save lives. 

To sum up, the device offers a win-win alternative that offers numerous benefits to both the insurance provider and car owner. Most importantly, apart from reducing insurance costs, the technology saves lives as drivers tend to become more cautious. 

Jeff Mathis worked as an insurance consultant for more than 20 years. He likes to keep up to date with industry news and writes about car insurance on a range of insurance and personal finance blogs around the Web.

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