By using a mobile communications device installed in the customer’s car to gather data, Norwich Union hopes to charge for insurance based on people’s use of their vehicles. This will cut prices for those who those who make limited use of their cars, but boost them for heavy users. It also represents a significant up-selling opportunity for the insurer.
UK insurer Norwich Union is beginning trials of ‘pay as you go’ car insurance.
Under an agreement signed with US insurance provider Progressive, CGNU unit Norwich Union will trial ‘black box’ information gathering devices in the vehicles of 5,000 of its customers. Information gathered by the ‘black box’, including how far the driver has traveled, will then be used to calculate a monthly bill for the driver.
There is no reason why in future other data about the driver’s behavior could not also be gathered and used to calculate premiums. The weather conditions that he or she drives in or even how fast they break and accelerate could all be factored in to the risk assessment for that driver.
Other future applications of the device could include extra services such as emergency assistance, traffic information real-time route planning. By partnering with traditional roadside recovery firms, insurance providers will able to develop extra revenue streams as well as giving themselves a competitive differentiator in a commoditized market.
The initial trial of the devices will include at least some extra services for drivers, emphasizing the importance of this as a motivation for Norwich Union in investing in these technologies.
Norwich also says that consumer demand for a fairer distribution of insurance costs is an important motivation. It says that 90% of survey respondents would prefer their motor insurance to reflect the usage of their car and the type of journeys they make. Of course, a key test of the new model will be whether drivers are still enthusiastic when many discover that they will in fact be paying more for their insurance.
The insurer will also reduce its risk exposure by improving the quality of the information on which it bases assessments. But while predicting the likelihood of claims on the policy more accurately should help save money, taking driver monitoring too far could create consumer resistance. Motorists could feel uncomfortable under the watchful eye of Big Brother.