Young drivers are being offered the chance to win earn back their insurance premiums by driving more safely, in the latest twist on 'black box' insurance.
A new policy from Carrot Car Insurance is promising to pay drivers cashback if they can show they are driving safely and reducing their chance of accidents. And crucially, it will not leave drivers facing painful premium increases if they fail to improve their driving.
It is another example of insurers turning to 'telematic' systems to price policies as a possible solution to the problem of soaring insurance premiums for young drivers.
Money back: Carrot Insurance customer Warren Reeves says that because he has been driving safely, he was rewarded with a £92 payment in the last quarter - read his full story below.The systems use an electronic device to record measures of driving behaviour - a so-called 'black box' - which can be used to price policies according to an individual's driving habits.
Carrot hopes it's policy will reward safer young drivers with cheaper insurance but also get premiums of all those who use it to fall because it will reward better driving behaviour.
When a driver signs up with Carrot they choose how many miles they expect to cover in the coming year. They can select in a range between 3,000 and 7,000 miles, which Carrot says enables them to pay only for the miles they need and get onto the road for less.
Carrot MasterCard: Drivers can get money paid back onto the card, which they can then withdraw free from cash machines or use to get cashback at a number of retailersThey are expected to keep within the limit or else buy top-up miles should they need them.
If they drive outside of the agreed mileage, the policy becomes invalid. However, Carrot says it alerts drivers who are closing in on their limit.
The cost of topping up with additional miles depends on how safe a driver is - the safer they have scored before, the cheaper it will be.
At the start of their policy they are given a prepaid MasterCard, which doesn't have any credit facility and is loaded with a £20 welcome bonus.
Each quarter, if the policyholder improves on their driving style, as measured by the i-box fitted to the car, cash rewards are paid into the prepaid account. This can be up to 15 per cent of the annual insurance cost.
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BLACK BOX ON THE RISE - BUT NOT EVERYONE WILL WINSales of 'black box' policies have increased fivefold in the past two years.
The British Insurance Brokers’ Association says telematics policies can knock 30 per cent off the cost, and some insurers claim savings can be as high as 70 per cent.
However, while costs should fall for better drivers, those who show themselves to drive in a way that makes accidents more likely, or costly, will pay the price.
The box uses GPS to send information back to the insurer about your driving behaviour.
Different types of telematics policies use this information to price their premiums.
For instance, premiums may be based on the number of miles driven or the time of day the car is mostly used. Some will even penalise you if you are on the road between 11pm and 5am.
Others will price their premiums based on driving style – speeding, harsh braking and cornering will be frowned on – while rewarding safe drivers with lower premiums.
Current providers of telematics-based insurance policies include the Co-operative, the AA, Coverbox, iKube, insurethebox and autosaint.
Unlike other telematics insurance providers, poor driving will not be penalised with mid-term increases in premiums.
Instead, prices are set in stone for the policy year and will not increase in response to the driving style score achieved, providing the policyholder’s personal details remain the same.
There are also no late-night driving curfews, or limits on carrying friends in the car with them, as happens on other black-box policies.
Carrot says that it wants to encourage young drivers to ‘change the way they engage with and think about their insurance provider,’ and also wants to provide an incentive for them to stay safe without ‘having to impose draconian measures on them in their first year of driving’.
Carrot said policyholders can withdraw the cash they build up. Although the MasterCard Carrot uses charges a 99p fee for cash withdrawals and money also cannot be transferred to other accounts.
However, the card can be used to make purchases, as with a debit card, with no charge. Additionally, purchases from specified retailers earning them cashback.
Carrot has a number of firms signed up to its cashback deal, including Topshop, Topman, Miss Selfridge, House of Fraser and Zizzi.
Drivers can also earn £40 for referring a friend to the insurer via its Facebook app, if the friend then goes on to take the insurance too.
Ed Rochfort, product director at Carrot Insurance, says: ‘Since Carrot was first conceived our philosophy has been to build a telematics insurance product that encourages and rewards safe driving, rather than punishing poor driving.
‘With Carrot, we’ve designed a customer experience that is all about rewards, and we feel confident that this will affect a change in behaviour, encouraging young drivers to take responsibility and drive safely, but also to enjoy the fact they are judged on individual merit.’
I WAS REWARDED WITH £92 LAST QUARTER FOR DRIVING SAFELYWarren Reeves, an 18 year-old stock controller from Birmingham, passed his test in August 2012 and drives a Fiat Punto.
He said: ‘When it came to looking for car insurance, I was instantly shocked at how expensive it would be.
‘A friend of mine mentioned Carrot Car Insurance and when I looked into it and compared it to previous quotes it was several hundred pounds cheaper, which was a big deal considering I pay for my policy myself.'
Warren said that knowing his driving is being measured on smoothness and speeding means he now concentrate more on the road.
‘My first quarterly cash reward was £92, and I can see from my personal online dashboard that I am on course to benefit from an even lower premium in my second year and another big chunk of cash for my second quarter.'
Warren said he uses his Carrot card to buy petrol or to put towards any maintenance.
‘I really like the fact that my quarterly reward is updated every day so I can see how much I am going to get – it feels like saving up', he said.
