Insurance

Black Box Car Insurance

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What is Black Box Car Insurance?

Black box insurance for cars, often referred to as telematics, is an auto insurance that uses technology to monitor and document the policyholder’s driving habits. The aim is to determine the insurance rates on the amount they drive as well as how secure (or unsafe) they are at the wheel.

Key TAKEAWAYS

  • The black box insurance utilizes technology to monitor and record the driving habits of the policyholder.
  • The insurance company will then adjust premiums according to the amount and the safety of the policyholder’s vehicle.
  • The safest drivers could see lower auto insurance costs, while others could pay higher than have with an ordinary policy.

The way Black Box Technology Works

Telematics is based on a mix of technology used in telecommunications, such as mobile phones and GPS.

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“Black box “black box” can be physically placed inside the vehicle or downloaded via a smartphone application. It connects to the GPS device that records and measures vehicle speed along with the location, driving frequency, distance traveled, and the time of day that the vehicle is moving. Other aspects of driving performance which can be measured are the force with which the driver applies the brakes, how quickly the car accelerates, and the speed at which the driver can make a turn.

All of that information is transformed into a score that the insurance company can utilize to determine a customized premium for the individual driver. The higher the score, the less the rate should be.

How do insurers utilize Black Box Technology?

Black box technology for a variety of reasons.

For instance, certain insurance companies offer pay-as-you-drive (PAYD) as well as usage-based insurance (UBI) policies. In a traditional automobile insurance plan, motorists typically pay a fixed amount that is determined by the number of miles they plan to travel over a specified time period, for example, six months. In contrast with a PAYD plan, the motorist only has to pay only for the number of miles they use. Black box devices or application is how the insurance company keeps an eye on this.

Other insurance companies use the technology to determine the level of risk a driver is. They might offer refunds to drivers who are safe, offer the bonus mileage allowance for their drivers, or extend the policyholder’s insurance at a lower price.

These incentives are driving the increasing acceptance of black-box technology by drivers. The 2021 J.D. Power study found that just 16 percent of U.S. car insurance customers have registered for telematics, and 34% of them are willing to test it, especially due to the fact that some insurance companies offer 30 to 40 percent discounts to customers who have signed up for telematics. 

Similar to 2020, a poll conducted by Arity, a telematics firm, found that “about 50 percent of drivers felt happy to have their insurance prices according to the number of miles they travel as well as the location they drive and the time of day they travel, and also speeding and driving distracted.” This amount was higher than twelve percentage points over the same survey in the year 2019. 

However, while the technology may result in lower rates for certain policyholders, a driver who travels long distances or works night shifts, or regularly exceeds the speed limit might pay higher premiums for a black-box insurance policy than when using a conventional policy.

Another concern is the privacy of data, and in particular, insurers may disclose personally identifiable information from black-box devices to third parties, such as police or banks. According to the Nationwide survey, 60% of motorists stated that they were concerned about privacy.

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