Insurance premiums could be slashed by up to £15 a year after the government announced driving licence records would be uploaded online.
The searchable database would allow insurance companies, car hire firms and individuals to check speeding endorsements and other offences.
The My Licence project – due to be launched by the Driver and Vehicle Licensing Agency (DVLA) in June - is part of the move to phase out the ‘paper counterpart’ document by 2015.
Currently, insurance firms ‘price in’ the risk of drivers being dishonest about points on their licence or making mistakes.
The new system would allow companies to access information using a driver's licence number. Meanwhile, through the gov.uk website drivers can gain access using a driver’s licence number, national insurance number and postcode. The Association of British Insurers estimates honest motorists could save £15 through the digitilisation.
Car hire companies will also have their administration burden cut as they will no longer need to check drivers' details by phone.
Cabinet Office minister Francis Maude said it was part of the government’s ‘digital agenda’ to save £1.2 billion by the end of 2015 and comes shortly after an announcement the paper tax disc would be scrapped.
Mr Maude added: “It is great news that DVLA is about to launch online driving records which can be used by anyone with a driving licence as well as by the insurance industry."
“This will enable insurers, for example, to price much more accurately, because they will not have to take anything on trust.”
AA president Edmund King said 92 per cent of its members supported the move if it cuts down on fraud but he went a step further calling for other motoring databases to be improved too.
Mr King added: “We believe that a more accessible database of mandatory recorded car mileage from MOTs and change of car ownership forms would help to prevent illegal clocking.
"The Citizens Advice Bureau receive 80,000 complaints about used cars each year and a significant proportion relate to concerns about inaccurate car mileage or clocking.
“These databases should be more user-friendly in order to help reduce costs and the threat of fraud for honest motorists."