How's my driving? Insurers increasingly can tell

Surveys routinely find that about 80 percent of drivers think of themselves as being of "above average" ability.

Sadly for them, and happily for common sense, their insurers do not take such claims on faith.

Underwriters traditionally have used crude demographic data such as age, location and sex to separate the testosterone-fueled boy racers from their often-tamer female counterparts. Now technology is giving insurers the chance to see exactly how skilled a driver really is.

By monitoring their customers' motoring habits, underwriters increasingly can distinguish between drivers who are safe on the road and those who merely seem safe on paper. Many think that "telematics insurance" will become the industry norm.

Most variants of this model rely on a simple device in the car that beams data back to the insurance company. Other schemes, like one operated by the British insurance company Aviva, rely on smartphone apps downloaded by customers. In America the focus is on how much time a car spends on the road, or "pay-as-you-drive." Europe, where Britain and Italy lead the field, typically has emphasized driver ability — "pay-how-you-drive" — by tallying how often brakes are slammed or corners taken on two wheels. Some devices include location-tracking options that can figure out if, say, a car is doing 80 miles per hour in a 50-mph zone.

The reward for prospective customers can be a discount ranging from 10 percent to 40 percent off a standard rate. The drivers most likely to benefit are those the standard insurance market is overpricing because of their age or other factors, says Mike Brockman of Insurethebox, a British underwriter.

Last month Insurethebox launched "Drive Like a Girl," a service that goads young drivers into safer road habits with the lure of cheaper car insurance. The spur was a recent European Union court ruling that bars insurers from discriminating on the basis of sex. This forces young women to pay more, since they are shoved into the same underwriting pool as crash-prone young men.

"You don't need to be a girl to drive like one," Brockman says.

The rewards for insurance companies could be even greater. They get to cherry-pick their customers based on data, not on crude assumptions.

"We have a way of actually identifying better drivers," says Dave Pratt, general manager of the telematics division at Progressive, one of America's biggest underwriters. "That is a huge advantage."

Progressive says that a third of its new business comes via its telematics plan. The hefty discount it offers to the best drivers still leaves it with plenty of margin. More importantly, it avoids insuring the expensive car-wreckers of the future. By granting lousy drivers no rebate, it nudges them to buy insurance elsewhere.

A side benefit is that insurers can more easily identify scams if, for example, a costly whiplash claim is submitted for what was in fact a small bump. This has driven growth in the Italian market, says Frederic Bruneteau of Ptolemus, a consultancy.

Nonetheless, customers — and some regulators — worry about the privacy implications of tracking drivers. Progressive no longer monitors cars' locations for fear of appearing Big Brotherish. Its gizmos stay plugged in for only six months to establish a snapshot of driving frequency and style, after which the discount is permanent.