‘Pay how you drive’ motor insurance policies, often known as telematics or ‘black box’ insurance, take into account how the vehicle is used when setting the premium. This allows an insurer to offer premiums that are more tailored to the users of a vehicle than is possible with a traditional motor insurance policy.
‘Pay how you drive’ policies use GPS technology to measure how a vehicle is being driven – insurers then use this information to make judgements about driving performance. This information is considered together with other traditional risk factors, such as a driver's age and occupation, to set premiums. ‘Safe’ drivers will usually benefit from lower premiums than ‘less safe’ drivers.
Insurers will assess driving performance in different ways, but most will consider things such as the number of miles driven, the types of roads used, and speed and braking patterns.
The technology may be in the form of a computer built into the car, it may be a small device – commonly known as a ‘black box’ – that is fitted by the insurer, or it may be a smartphone app.
For more information on ‘pay how you drive’ insurance see 'pay how you drive' motor insurance – ABI consumer guide (pdf 179kB), which sets out what you can expect from a ‘pay how you drive’ policy.
The ABI has also produced a good practice guide for providers of ‘pay how you drive’ insurance to help ensure that customers are being treated fairly. The guide is voluntary, but has been developed in consultation with insurers, the Financial Conduct Authority (FCA) – which regulates the insurance industry –and the Information Commissioner’s Office, which promotes data privacy for individuals. For more information see selling telematics motor insurance policies – ABI good practice guide (pdf 270kB).
When selecting a ‘pay how you drive’ policy, you may want to ask the provider whether they comply with the ABI’s good practice guide. If they do, you can be confident that you will be treated fairly.