Usage-based insurance, sometimes called insurance telematics, pay-as-you-drive insurance, pay-how-you-drive insurance, distance-based insurance, or pay-as-you-go insurance, is very popular in the UK, Italy, and Germany and is gaining popularity in the United States, with programs available in every state in the country.
What Is Involved
A device is added to your car that sends certain information back to the insurance company, which then analyzes the data and uses it to determine whether to give you a discounted premium. The exact info gathered depends on the insurance company involved, and it's typical for insurers to gather about six months of data before making a decision.
Common Factors That Can Affect Premiums
People who drive very fast, drive during premium hours, drive long distances, and often brake hard are considered more likely to have accidents, so these are the types of data that the black boxes typically send to the insurance company. Some companies also track where you go or collect other types of data as well.
People who allow their insurers to gather insurance telematics on their driving habits are often given some type of discount when they sign up and may be given access to roadside assistance or other added benefits. Depending on the insurance company, discounts for safe driving could be up to 30 percent. Using this type of insurance tends to make people pay more attention to their driving and drive safer, according to a survey done by the Insurance Research Council, with 56 percent of respondents noting that they've made at least small changes to their driving behavior based on feedback from their insurance company.
There are two main considerations that keep certain individuals from signing up for this type of usage-based insurance. First, some people are worried about the potential for premiums to go up. Some insurance companies are starting to instigate penalties for those who don't drive as safely or tend to drive mostly at riskier times, although many are still in the stages where they promise no increases will take place. The other major consideration is privacy and the security of the data collected.
People Most Likely to Benefit
Some people are more likely to benefit from this type of insurance than others. For example, people who are considered a high risk using traditional car insurance metrics, such as young drivers and those with previous convictions, may be able to get lower rates if they use one of these devices to show they are driving safely. Also, those who don't drive much and tend to drive more in off-peak hours during the day may benefit. Those with long commutes or those who drive a lot late at night might be better off sticking with traditional car insurance.