Advertisements for what is known as “pay as you drive” insurance have been increasingly common in the mass media in recent years. For people in the insurance industry, these kinds of policies are referred to as usage-based insurance policies.
A surprising amount of people are unsure about how the policies work and more importantly – are they worth getting?
The concept is pretty simple. You attach a device to your car which normally plugs into the onboard computer of your vehicle if you have one. That device begins to collect data about your driving including speed, usage (on the highway or suburban streets), driving style (are you a lead foot?) and frequency of trips (do you drive once a week or everyday).
This data helps the insurance company understand your usage patterns and they can offer a plan tailor made to your requirements. So far about 1 million vehicles in the United States have these “telematic” devices attached to their vehicles but the number of cars with devices is growing very rapidly. Some of the them are also being used by fleets and governments to track driving ability and performance of their their employees.
At this stage a number of the larger insurance firms are offering this kind of insurance, including Fartford, GMAC, Allstate, State Farm and Progressive insurance. This form of insurance isn’t offered in every state yet though, so you may find yourself out of luck if you live in the wrong state.
It really depends upon your usage. The insurance companies suggest that most consumers who are good drivers will save between 20 and 50 percent. Some consumers who barely drive their cars or have a small amount of time in the car everyday can save big with this kind of insurance. Some insurance companies have been offering discounts just to install the device, so even if your driving habits don’t get you a significant discount, there is a small one available.
Can it all go wrong?
One question many drivers ask is can they lose money by signing up to a pay as you drive insurance policy? Well according to the insurance companies, the answer is no. Representatives from the insurance companies claim that the programs are simply designed to reward good drivers, not to punish the bad ones.
Critics have suggested that these devices may be somehow used in the future to invalidate insurance claims. For example if your vehicle was traveling 5 miles over the speed limit before an accident, the device might be used to nullify an insurance policy if there is a clause in the insurance policy mentioning vehicle speed. The policies do not do this at the moment, but something to consider for the future.
What do these devices measure?
Most of the devices will measure simple statistics like the time of the trip, the car’s speed and the mileage. However some devices can also measure GPS co-ordinates so they know where the vehicle has been – a concern to some people for privacy reasons.
The devices can even have alerts programmed into them which notify the driver when their speed is excessive. Actually a bonus for some parents concerned about the awareness of their teenage drivers. The more advanced devices with GPS fitted allow a parent to log onto a website and view the location and speed of the vehicle.
Some devices only measure the speed of the vehicle once it reaches a certain threshold, for example the Allstate device only measures speed after 80mph.
If you are an aggressive or frequent driver, there may be little benefit for signing up to a policy with this kind of device.
The devices will benefit drivers who:
- Are safe drivers who stay within speed limits
- Have short commutes
- Don’t drive very often
The devices allow insurance companies to offer some interesting and innovative plans. Some companies have taken to offering cheaper insurance if you drive less often, regardless of distance. They calculate how many times your car has traveled from point A to point B and use that to determine the cost of the policy.
Because some drivers have unusual driving patterns, finding the right policy tailored to your unique style of driving could be a big money saver in the long run.