(Bloomberg) — Insurance companies around the world are promisinglower rates on car coverage. The catch is they want to install theequivalent of an airplane's black box to track how and where youdrive.

Smartphone applications and devices that record trip and vehicledata are set to infiltrate auto insurance at a rapid pace,bolstered by discounts of as much as 30%. Consultancy Oliver Wymanforecasts that car insurance using driver data to set prices willgrow 40% a year to become a $3.6 billion market by 2020.

For insurers, it will provide fine-grained information on anindividual's driving style, like flooring it to beat a red light,to improve returns in the competitive segment. For drivers, BigBrother-like monitoring offers the prospect of lower rates andfaster response time in the event of an accident, including medicalassistance and repairs. In any case, the shift away from standardpractices of rating customers by age and driving history might beunavoidable.

"In the not-so-distant future, it will become a marketstandard," said Domenico Savarese, who heads vehicle-data effortsat Zurich Insurance Group AG, which provides auto coverage forabout 15 million drivers in as many as 30 countries. As autosbecome increasingly equipped to gather and transmit data, "motorinsurance will by definition need to change."

Insurer Shortcut

Auto coverage in Europe generates about 130 billion euros ($160billion) of premium income a year, the largest segment aside fromlife insurance. Because motor insurance is largely standardized,insurers fight for market share with lower rates.

That's meant Germany's car insurance market, Europe's biggest,has been unprofitable for carriers since they intensified pricecuts in 2005. Insurers in the U.K., Europe's second biggest, arealso seeking ways to end years of underwriting losses.

Insurers are looking for alternative tariffs, and rates based onindividual data may make it tougher for consumers to compareprices. Roland Berger Strategy Consultants counted insurers on sixcontinents and about 30 countries working on user-based programs,according to a study. That's becoming feasible due to trends in theauto industry.

Axa Savings

Manufacturers from Volkswagen AG to BMW are making cars moreconnected to add features that warn other vehicles of traffic jamsand ultimately to facilitate autonomous driving. Regulators arealso underpinning the spread of the technology. European Unionlegislation will require new cars to have a system thatautomatically notifies emergency services after a serious crash,relaying basic data about location of the accident even if thedriver is unconscious.

Still, carmakers haven't made the data readily available as theyseek to protect their turf. That's caused insurers to side step themanufacturers with devices that gather that informationindependently.

"Since carmakers are sitting on the data, insurers are taking ashortcut," said Juergen Reiner, a partner at Oliver Wyman. "Thatmeans insurers get that part of the customer relationship, at thecarmakers' expense."

In Ireland, Axa SA is promoting its Drivesave program withdiscounts of as much as 20% to drivers from 17 to 24 years old. Theservice uses a smartphone app to record data such as acceleration,speed, distance and stopping force. Another 10% a year could besaved if customers continue to drive safely.

Allianz Expansion

In Axa's home country of France, a similar program will beintroduced next year that may reward good drivers and penalize badones.

Allianz SE, Europe's largest insurer, is following a similarpath and will open a center at its Munich headquarters next year toexpand its monitored-driver offering to 10 countries from four.

For decades, commercial airliners have been equipped with voiceand data recorders that record flight information and can helpdetermine the cause of an accident. While privacy concerns exist inexpanding that capability to cars, the lure of lower premiums andadded safety is a powerful incentive, especially among youngerdrivers who are accustomed to permanent connectivity.

'Ultimately Unstoppable'

"We don't want to get data that we don't need, so we don'tbecome a Big Brother," said Zurich's Savarese. "Clearly, we want toknow if there's an accident, and that's probably the moment when wewill want to know the most about your drive."

While user-based car insurance makes up less than 5% of themarket, the share is expected to soar to 26% in the U.S. and 38% inthe U.K. by 2020, according to the November study from RolandBerger Strategy Consultants.

"We think it's ultimately unstoppable," said Juergen Thiele, apartner at Roland Berger. "It'll be a market standard, even thoughwe'll see some of the old tariffs remain."

–With assistance from Oliver Suess in Munich.