There aren’t too many rewards for driving safely. The best the NSW government can offer is a half price drivers licence – but only with a spotless record for 5 years. Fines for bad driving continue to fill government coffers. Rather than habitually punish bad driving, isn’t it time to reward good driving? Insurtech may help us do that.
More sticks for bad driving than carrots for good driving
There are thousands of traffic offences and barely any rewards for good driving. You may have a flawless record for 4 years and then get three demerits just before you renew your drivers licence.
In fact, safer drivers are punished twice:
- They pay too much for CTP to subsidise high-risk drivers – it’s not based on their real driving.
- They pay taxes to fund traffic police, ambulances and hospital emergency departments.
The main reason why we don’t treat safe and risky drivers differently is because we don’t know who is safe and who is risky. We only know who has broken the law.
Many state-government CTP schemes charge a flat premium that is unrelated to how carefully motorists drive. In NSW, demerit points or recent accidents and claims, or driving a new car, are still only proxies for safety.
Isn’t it time to reward good driving?
What is insurtech?
Insurtech (insurance plus technology) uses data to price insurance based on the individual customer. It is sometimes known as usage-based insurance and is very popular in Britain and the US. However, Australia still doesn’t have true usage-based insurance. There are two kinds:
- Pay as you drive – your premium depends on odometer readings to show how far you travelled.
- Pay how you drive – the premium depends on data collected about your driving behaviour:
- High or low speeds
- Hard or soft braking
- Rough or smooth cornering
- Poor or accurate steering
- Day, peak hour or night driving.
This kind of information is useful for insurers and drivers. Insurers can use it to build a profile of what kind of driver you are. Drivers can use it to change their behaviour, get cheaper premiums or save fuel.
There is currently only one provider of insurtech in Australia and it uses a device that plugs into your car. You pay vehicle insurance according to two calculations:
- An upfront fixed cost – While vehicle is parked, you’re covered for fire, theft, 3rd party damage, hail etc
- A per-km rate – The number of kms you drove that month, multiplied by the per-km rate.
Even this insurer doesn’t base premiums on how you drive; only how far you drive. No doubt, other providers with different models will enter the relatively new Australian insurtech market.
Base insurance on risky driving
Dr Richard Tooth, Sapere Research Group, wants to base your annual vehicle insurance premium on how risky your driving is.
In Australia, compulsory third-party insurance (injury to people) is separate from general vehicle insurance (for damage or theft of property). This means insurers can’t offer much incentive for drivers to actively avoid taking risks on the road.
Ironically, almost all of us think we’re good drivers. We think it’s other drivers causing the problem.
At the same time, people who drive badly and cause accidents may not bear the full cost of the damage. The insurer or the taxpayer usually pays. In fact, the NSW CTP scheme may even entrench this “moral hazard” because at-fault drivers are also eligible for fixed benefits.
Meanwhile, the biggest cost of all – grief, pain and suffering – can’t even be measured.
Perhaps if governments or insurers were to reward good driving, rather than just punish bad driving, they would do more to bring down the road toll.
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