Could you handle scrutiny of your driving habits in return for a price break on your insurance? That’s the bargain participants in usage-based (or telematics-based) insurance programs are making. In return for driving well and logging low miles, you could save as much as 50 percent off premiums.
On the flip side, some insurers will charge you more if your driving behavior suggests risk or if you drive more than expected. Progressive, for instance, says 2 out of 10 drivers in its Snapshot program get a rate increase because of high-risk driving.
To track your driving behavior, your carrier might send you a “smart tag” that you attach to the windshield; it pairs with your smartphone via Bluetooth to transfer your driving data to the insurer. Or you might receive a “dongle” that essentially does the same thing when you plug it into your car’s onboard diagnostic port. (All cars built in 1996 and after have such a port, usually found on the lower dash.) In a newer car, you might connect via smartphone app to the vehicle’s built-in computer systems that facilitate telematics.
As you drive, the system transfers a record of your ride to your carrier, which may offer feedback, or a driving “score.”
Acceleration, braking, cornering, mileage, speed, time of day, and phone use are among the types of information that State Farm’s Drive Safe & Save program collects.
“We include phone use to make people aware of their own behavior and to help them become safer drivers,” a State Farm spokesperson said. “But we also know there are times when a passenger may need to use the phone, so we don’t include this in calculating the discount.”
Usage-based insurance might make you safer behind the wheel. In a study recently published in the journal Marketing Science, researchers found that drivers using these programs reduced hard braking by 21 percent, on average, after six months. Younger drivers improved more than older drivers, and women improved more than men.
The innovation has other potential benefits—and risks. Using driving patterns to price policies instead of nondriving factors like credit history can be worthwhile, but only if it's handled right, says Justin Brookman, Consumer Reports’ director of consumer privacy and technology. “If auto insurance prices are transparent, data-driven, and attributed primarily to risk factors under the control of the driver,” he says, “that could lead to more fairness and improved driver performance.”
“But companies must clearly explain how the data will be used, so driving scores don’t become a black box obscuring how prices are set,” Brookman adds. “And they must explain how they will constrain sharing of data, establish internal safeguards, and protect consumer rights to see, challenge, correct, or delete the information collected about them.”
How much can you save by using these systems? If you already have a low-mileage discount, maybe not so much. Research by The Zebra, a car insurance search engine, found that drivers in Connecticut using telematics get the largest average discount on an annual policy: $102. The median for all states and the District of Columbia is $46.
Editor's Note: This article also appeared in the November 2019 issue of Consumer Reports magazine.
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