INTERNATIONAL Road safety The black box of road safety?
Usage based insurance involves insurers charging premiums based on how people drive
Australian economist Dr Richard Tooth says by making insurers pay the true cost of road traffic accidents will force people to drive more safely, cutting the cost of out-of-vehicle enforcement and even insurance premiums themselves
O
ne of the most significant developments in road safety in recent years has been the
use of telematics to support usage based insurance (UBI). As the name sug- gests, UBI involves insurers charging premiums based on how people drive. Telematics technology in the insured’s vehicle provides the insurer with infor- mation on measures that may include speed, location, time of travel, distance travelled, acceleration and decelera- tion. Those who drive less, more safely and at safer times are rewarded. The limited available empirical evidence suggests that such insurance policies can
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significantly improve safety outcomes. One UK insurer, insurethebox, esti- mates that, after controlling for normal improvement in young drivers (as they gain more experience), the effect of telematics-enabled UBI has been to reduce the rate of accidents involv- ing young motorists (drivers aged 17 to 21) by 35 per cent to 40 per cent.1 In many jurisdictions sales of telem-
atics-enabled UBI policies are growing rapidly. The British Insurance Broker’s Association estimated that earlier this year there were around 300,000 active UBI policies in the UK, an increase of over 60 per cent over 18 months.2
The
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growth rate is so significant that it is esti- mated by 2020 UBI policies will cover over a third of the UK market. Impor- tantly, UBI is most attractive to high risk drivers, such as the inexperienced, who receive the most significant reductions in their insurance premium for safer driv- ing. Therefore, it is likely that by 2020 — the end of the UN declared Decade of Action on Road Safety — the majority of high risk drivers in the UK will be cov- ered by a telematics-enabled UBI policy.
REGULATION, REGULATION, REGULATION Telematics-based UBI is not penetrating
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