“Pay as you drive” insurance has become more prevalent within recent years due to large advertising campaigns touting the money saving potential of this form of car insurance. Within the insurance industry these kinds of policies are referred to as “usage based” policies. They place more emphasis on your usage of a vehicle to determine what premium you should pay for the policy.
Many people are interested in pay as you drive insurance but don’t understand exactly how it works. This article will look at the basics of this kind of car insurance policy and help you understand if you should purchase it!
These kinds of policies often utilize something called “telematics” to determine car usage. Telematics deals with technologies that are capable of recording and reporting how far your car travels, what speeds it travels, how long each trip is and other information which you agree to share with your insurance company.
Telematics help an insurance company build a very detailed risk analysis profile from your car usage and driving style. The devices can also record data like car acceleration and car braking speed, which the insurance companies can use to determine if you are a “safe” driver. That more detailed risk analysis allows them to offer you lower instance rates if you drive your car less than the average person.
In the United States over 1 million cars have these devices fitted and that number is growing quickly. Many of those cars are fleet vehicles that have the devices fitted so companies know where their assets are located but the insurance industry is pushing hard for customers to use these devices.
How much can you save?
Essentially it comes down to how far you drive, how frequently you drive and how safely you drive. If you drive daily the savings might be limited because your vehicle is still regularly exposed to all of the dangers of being on the road. If you are a safe driver who is not on the road every day, you can expect savings of between 25-50% compared to a standard insurance policy.
Because the technology is new, many companies are offering cheaper insurance premiums just to install the device, so there are savings to be had there as well.
Telematic devices are also becoming more advanced and will be capable of storing more detailed driving data. At the most basic they measure speed, time of the trip and distance of the trip. However the more advanced units can measure breaking power, acceleration speed and location to ascertain what kinds of traffic the vehicle is exposed to and how safely you are driving.
Not every insurance company will use the more advanced capabilities of telematic devices and the precise capabilities of the installed device will be detailed in the insurance policy.
Are there any drawbacks?
Insurance companies claim that these devices are only designed to reward good drivers, so there are no penalties attached if you install one and drive badly. However it is unknown if it will always remain that way and insurance companies might eventually use them to determine which drivers are high risk.
If they do eventually start using the devices to build a record of your driving ability, and that information is sold onto other insurance companies, it could mean an increase to your premiums. However it is important to note that insurance companies are not at that stage yet and it may not be legal for them to do so.
There are also some concerns about the security of these kinds of systems also. Every computer system has vulnerabilities, and some of these telematic devices are capable of tracking your position with GPS. Even though it has not happened yet, there may come a point when the devices or systems that send data are compromised.
The bottom line
If you are a safe driver and drive infrequently pay as you drive insurance could save you a lot of money. Telematic devices are becoming more popular and help insurance companies provide better coverage tailored to your particular driving habits. If you are interested in saving money, it’s worth taking a look at these kinds of policies as soon as possible!