Usage-Based Car Insurance

Usage-based car insurance is different from conventional car insurance, which charges according to premiums and other distinctions. Instead, usage-based car insurance is based on how a car is used. This means drivers will pay for insurance according to how they use the car. Calculations can be based upon how far in miles the driver drives, the time used and how and where the car is used. Probably the simplest calculation will be based simply upon miles driven. On top of these considerations, the insurance companies can add optional extra risk premiums. This type of car insurance has been praised by transport and environmental groups who think that it is an effective way to get more people to drive more responsibly or drive less often. Certainly, it may have the benefit of pushing riskier drivers off the road if they have to pay more for their insurance. Or, it may encourage drivers to drive at safer times more instead of during rush hour traffic for example, as this will cost them less each year in insurance. Besides these benefits for society and the environment usage-based insurance has some other benefits also.

For insurance companies who use usage-based insurance, it can lead them to make insurance predictions more accurate. Their predictions may be closer in value to the actual risks being taken. This can make an improved method for customer segmentation and give fairer prices for all kinds of different drivers. Customers may like to have the right to choose usage-based insurance over conventional insurance and this freedom of choice must be supported. It leads to a greater wealth of choice in the insurance marketplace for customers. Young drivers might find usage-based insurance a fairer way of testing that does not automatically place them in a high risk group where they would have to pay higher premiums.

The usage-based insurance is measured often in real time through a connection with the car itself being used. An odometer reading can tell the insurance company how many miles have been driven. Or, a cell phone might tell them how many minutes have been clocked up on the car. RF technology is a way of effectively submitting this kind of data and can tell insurance companies much more interesting information that could be useful. This might include car speed, time of day during driving or the distance and time amount travelled. Optional extra risk premiums can be put in place for bad driving practices, like using a mobile phone on the road, travelling too far without adequate breaks or going over safe speed limits. The telematics nature of the information given or processed means sometimes that the driver will benefit. For example, if GPS tracking is used this can aid the driver in the event of a breakdown, criminal incident or an accident. Satellite technology may also be employed which is useful in itself. This leads to better protection for the driver and the vehicle.

Usage-based insurance is most often called Pay as you Drive (PAYD) or Pay how you Drive (PHYD). The market in the US is going strong right now. Many insurance companies, indeed up to 50%, now offer these kinds of programs in the US as well as conventional car insurance. Allstate has just started to pioneer its own usage-based program in some states. Since the summer of 2011 State Farm has offered what is called an In-Drive Service. This has included the discount program called Drive Safe and Save which has the benefits of extra features included like emergency roadside assistance.

Probably the main usage-based insurance program at the moment is run by a company called Progressive, who advertises discounts of up to 30% with its Snapshot program. The program works by customers applying to the program after which a device is mailed to them. This device is about the size of a smartphone and fits into the on-board data port. All cars manufactured after 1996 should have one of these. This device then sends data wirelessly to the network of the carrier. This data is collected for up to 30 days, after which the insurance premiums will be adjusted to include any available discounts if there are any applicable. Then, after six months the device is returned and if the customer keeps the policy they keep the applied discounts too. This program has been extensively advertised across the US. It is available only in some states, excepting N. Carolina, Indiana, California, Hawaii, Alaska, Washington and Tennessee. If someone is not a customer of Progressive they can still try out Snapshot for 30 days. After being plugged in for five or more months an on-going renewal discount is made available for drivers.

GMAC is another company getting in on the action. They have OnStar technology that is installed in vehicles which will track their annual mileage, time of day during driving and monitors speed habits. For those cars whose mileage is less than 15,000 miles per year customers will be offered discounts. Generally, the lower the mileage of the car the higher the discount will be for the customer. If you drive less than 2500 miles a year you can expect to receive a discount of 54%. If you drive less than 15,000 miles a year a discount of 13% will be applied to policyholders in up to 35 states. The company State Farm also uses OnStar technology in fourteen states, namely Illinois, Alabama, California, Colorado, Ohio, Pennsylvania, Minnesota, Utah, Washington, Indiana, Michigan, Florida, Texas and Georgia.

American Family Insurance recently started a pilot program and has reported that results have been successful. Their spokesperson Steve Witmer has said that from these results the company is likely to develop the program into something permanent. Meanwhile, Esurance is offering a usage-based program in Texas which offers drivers up to 30% discounts. They use the wireless carrier called Sprint to transfer and receive data from devices that are plugged into a vehicle’s diagnostic port. They have also piloted a similar program in the state of Arizona for interested drivers.

The Hartford & Octo USA Inc really uses detailed information to find out about driver’s habits like the speed of driving, time of day of driving, their location and vehicle identification number. This program is a little different in that as soon as drivers enroll they receive a 5% discount. After they have driven for a minimum of 25 days the drivers will then be eligible for discounts of up to 25%. All information is communicated over a cellular network. Currently, this program is available in 5 states. These are Missouri, Oregon, West Virginia, Minnesota and Connecticut. Hopefully however it will soon be available in more American states.

The company Travelers has a program called IntelliDrive in four states at the moment from Ohio to Illinois, Oregon and Virginia and plans to expand. A 5% immediate discount is for those customers who install a tracking device while customers can save a further 20% according to their driving habits. State regulations also come into consideration when dealing out discounts. Safeco insurance is a subsidiary of Liberty Mutual. They offer drivers who would normally have to pay a higher premium the opportunity to redeem themselves through a usage based car insurance program. A driver may have caused an accident or received a parking ticket, for example. The Rewind program records the driver’s mileage, their location, acceleration and speed with monitors on board. If a driver proves that they have safe driving habits any premiums they have to pay will be waivered, however this opportunity has not gone nationwide yet.

Those experts of the car industry believe that this could really be the year that usage-based car insurance programs take off. US companies like Progressive who were one of the first to launch such a scheme are saying just how good the competition out there is becoming for them, what with new programs being rolled out all the time. Nevertheless industry experts at PricewaterhouseCoopers believe that insurers still have a long way to go in educating customers on the benefits of this kind of policy. What with GPS and increased used of smartphones connected to the net on the road it has become easier than ever to transmit data from a car. Pairing a car with Bluetooth is another option; pushing these services onto the cloud is another. Some industry experts even expect that cars will be run on certain computer platforms, from which they will be able to purchase working apps, a bit like an Apple app or Android app store. There are a lot of different options in how to go about transmitting data but there is no doubt that what with all the technology out there it will certainly be possible.