Vehicle insurance industry is a highly competitive one like many other sectors. Companies feel the pressure to offer good rates if they want to increase their customer base. However, this does not mean that every driver will benefit from this competition equally. Good drivers are more likely to enjoy lower and lower rates over the coming years. And a few companies, especially the top ones, would quote higher premiums for high risk drivers to reduce their exposure. Pay as you drive insurance can help when a risky driver is struggling to find affordable coverage. These plans are also known as pay as you go car insurance.
Many auto insurers have already switched their attention to identifying and rewarding good drivers more efficiently. As a result several companies are turning to driver monitoring technology known as telematics to identify safer drivers and reward them with lower automobile insurance rates.
How Does Pay As You Drive Insurance Work?
Today, eight out of ten top US auto insurers offer Pay As You Drive (PAYD) programs that work differently from each other. The pioneers of these types of policies, Progressive, uses a device called Snapshot to monitor driving behavior and adjust premiums accordingly. They would send you a little device with instructions as to how to fit it on your car’s onboard diagnostic port.
The company is even offering to test the device for a month free of charge and see if it will offer you savings and you will be happy with it. If you don’t like it you can take it off and post it back to Progressive. If you decide to go ahead with it they will look at your driving habits, how often you break hard and how many miles you drive and offer you discount. You will need to keep the device a few months longer for the company to determine your renewal price.
The essence of pay-as-you-go car insurance programs is that you allow the insurer collect the information they need to judge your driving abilities. They use little devices or onboard computers to monitor your driving habits. They then use this information to calculate your premium.
Some companies utilize existing on-board diagnostic solutions for monitoring your driving, along with below mentioned insurers using special devices to monitor your driving habits. One or two companies may accept odometer readings you send them regularly. New programs are being tested and existing programs are revised often. So, you may have more options by the time you look for a policy.
What Information Is Collected for Telematics Auto Insurance?
There are various plans. Several companies want to find out how many miles you drive, how often you step on brake and what time of the day you like to use your automobile. But some insurers just want to confirm annual mileage by using a device that transmit mileage information only. It is fair to say that companies are trying to eliminate the objections to the system by not looking at your speed and not checking where you have been. However, there are programs that are operated using GPS devices. So, again you need to check specific offering to make a choice.
Which Cars Are Allowed in Pay As You Drive Insurance Programs?
It is fair to say that what type of a car you own doesn’t affect your eligibility in general. If one company doesn’t provide the solution you may have to go with another one. But you should be able to find one that will accept your auto providing the program is available in your state. However, these programs are currently only available for private automobiles and not available for commercial vehicles.
What Are the Benefits of Pay As You Drive Car Insurance?
The obvious benefit of telematics devices is that they can be influential in driving insurance premiums down. It is estimated that about 70% of motorists would be able to save money with PAYD. According to Brookings Institution 2/3 of households would be able to save $270 per car on average should they choose this option. This goes to show that we are being judged harshly by auto insurance companies and charged higher premiums than we deserve.
Most of these programs offer feedback to motorists about their driving. Some of them set up an online log in system that allows the policyholder see their driving information collected by the company in real time. And devices like Snapshot can be set to beep when you brake too hard. This can tell the driver that he/she needs to watch the traffic in front better, keep a wider distance from the car in front or drive less erratically.
So, these devices offer feedback and chance to improve your driving. One insurer in Germany highlights this point by naming the program brilliantly as “Mein CoPilot” (My Co-pilot). It is fair to say that wide use of such solutions would improve driving quality across the country and make the roads safer for everyone.
It may be far-fetched looking at limited availability of these programs but there may be broader benefits if all of the US motorists adopted pay-as-you-go auto insurance. Brookings Institution’s findings are pretty interesting as they estimate driving would decline by 8% across the country. This suggests that people would be more aware of distances they drive and avoid unnecessary trips. This reduction in driving would cut carbon dioxide emissions by 2% and oil consumption by 4%. They estimate that total savings nationwide, including damages and injuries claims, would be around $50 billion.
Who Can Save with Pay As You Go Auto Insurance Policies?
It is clear that large number of motorists should consider these programs if they are available in their states. Obviously the savings will vary depending on many factors. Here are some of the points to help you decide if it is for you.
- If you are already a good driver with proven record it may not help in reducing your already low premiums. This would specially be the case if you are driving a few thousand miles a year.
- On the other hand, you may want to consider pay-as-you-drive insurance when your premium is increased at renewal due to recent accidents and claims.
- Generally, you would have a better chance of saving money if you are driving less than 11,000 miles a year. As a general guidance, the lower the mileage the higher the possible savings.
- Young drivers are more likely to get cheaper rates. For example, Allstate’s Drivewise offer 10% discounts just for joining.
- You are given a chance to break away from usual grouping by the insurers. For example, if you are a young male driver you will be grouped with other young male drivers who are probably the most dangerous group of drivers. When you have telematics, your premium will be based mainly on your driving and not on your age and gender (which you cannot influence).
- Many people who used the systems confirm that they consequently become more aware drivers as they are conscious of being monitored. Anything that helps is a good thing.
- Countryside drivers and the ones who can avoid rush hour traffic can benefit a lot more from telematics. Perhaps, it is an ideal solution for people over the age of 70 who would see some increase on their premiums otherwise.
- It would be a good choice for convicted drivers. They are likely to bring down premiums by installing a “black box” to let insurers see their driving and by making corrections on it a bit. Their traffic related convictions will still have a bearing on how much premium they get charged.
- If you are often driving between midnight and 4am this may not be for you. Time of the day is another data monitored and this time frame is considered most risky by carriers.
Objections to Usage Based Car Insurance with Telematics Devices
This little device will report on you to the monitoring center. Allowing such device may be seen as invasion of privacy by many people and therefore they may not even want to consider it. That is why companies try to limit the information they collect. Not monitoring where you have been and your speed are steps in the right direction. It is not a good idea to have it in the record that you have broken a few speed limits.
Another obvious concern about telematics insurance is that people are worried they won’t be able to save money and their rates may even go up as a result of their driving habits. The 30 day free trial offered by Progressive is a great solution for people who are not sure about the benefits.
Pay As You Drive Auto Insurance Companies
As mentioned above most large insurers offer various solution. Nonetheless, there isn’t any one of them that offers a program across the whole of the United States of America. Progressive is the company that offers the most well-known and wide-spread program and even they don’t offer it in few states.
Allstate has a similar program called Drivewise and they can offer you initial discount (of currently 10%) just for agreeing to it. They use Onstar auto dashboard solutions that allow remote diagnostics solutions to collect information. State Farm is offering similar programs but it is currently available on limited number of states. Hartford Financial Services is another company which is running similar programs. A few other carriers may offer mileage based car insurance premium calculations.
Also, similar programs are offered in other countries like the UK, Italy and Germany. Their application can be quite different from the USA. They tend to call the device installed “black box” and it may be a bit more intrusive.
Popularity of PAYD policies are increasing and more and more companies offering such coverage options because these policies are driving insurance costs down. According to carinsurance.com, here are the companies and names of their plans.
Also, you should keep in mind that many companies offer cheaper quotes based on mileage brackets estimated even though the policy may not be classified as PAYD.
Progressive – Snapshot: Progressive is the pioneer of the Pay As You Drive (PAYD) plans. The Snapshot device needs to be fitted to your vehicle so that the company can receive time of day, speed and braking patterns. If you avoid driving at peak accident hours (from midnight to 4 am) you can get good discounts. Motorists can save up to 30% with this program.
Allstate – Drive Wise: This policy product is currently available in 30 states. A plug-in device records motoring habits, which are used to qualify a policyholder for a 10 percent discount for the first policy term. If drivers maintain safe driving habits and low mileage in subsequent policy terms, savings can reach 30%, according to the company.
State Farm – Drive Safe & Save: State Farm receives odometer readings from devices like OnStar or SYNC and adjusts your premium to reflect the mileage. The company says discounts usually range from 10 to 50 percent depending on mileage.
The Hartford – TrueLane: A plug-in device records relevant driving information and transmits it to the insurer. You get a 5 percent discount by enrolling. After driving for 75 days, your premium could drop by as much as 25 percent, depending on safety of your driving. TrueLane is currently offered over 20 states.
Travelers – IntelliDrive: You can receive up to 5% immediate discount by installing this telematics device. IntelliDrive can reduce premiums by as much as 20% for the best drivers, according to Travelers. However, it is not as widespread and currently available in Alabama, Connecticut, Indiana, Illinois, Maine, Ohio, Oregon and Virginia.
Esurance – DriveSense: a plug-in device transmits details through wireless network to the company, which determines if drivers qualify for discounts up to 30%. This program is now available in Arkansas, Arizona, Idaho, Iowa, Illinois, Massachusetts, Nebraska, Rhode Island, South Dakota and Texas.
Safeco – Rewind: The company offers a PAYD for drivers who are paying higher insurance rates due to traffic tickets or accidents. A device monitors driving and keeps a record. After evaluating the records, Safeco may reduce or eliminate the premium increases that came because of the recent violations or accidents.
National General Insurance – Low Mileage Discount: This Company’s plug-in device monitors much the same data as others do; speed, braking, mileage and when a vehicle is driven. The company also offers the option of reporting mileage though OnStar. The rate cuts range from 13% for motorists who drive 15,000 miles a year to 50% when you drive less than 2,500. The Low-Mileage Discount program is offered in 35 states.
American Family Insurance: The insurer recently completed its testing of a PAYD model based on a plug-in device. According to company spokesman, Steve Witmer, the research is being evaluated, with the hope that a product will soon be available to customers.
Metromile: A plug-in device tracks just your mileage and you’re billed a monthly base rate plus your per-mile charge. You can pay 40 – 50% less than you would pay using a traditional insurance plans, if you drive less than 5,000 miles a year, according to the company. Currently it is only available in California, Illinois, Oregon and Washington.
We should count ourselves lucky that we are offered many options these days. Usage based vehicle insurance is one of those great options to consider if you want more affordable auto insurance. It is easy to moan about how expensive your premium is and how greedy auto insurers are milking you. But, you should look at your own actions first and ask why is my car insurance so high? If you let your driving slip from acceptable to dangerous who is to blame? Shouldn’t you accept some of the responsibilities for not correcting your mistakes and improving?
Shouldn’t you accept most of the blame for your high premiums if you don’t consider all your options and shop for the best policy attentively? Going for a telematics based policy can save some people up to 50% on their premiums. Next time you need to insure your car you should check all your options and make a smart decision based on knowledge.