What if your insurance company could grade your driving?

Thanks to technology, now they can. That’s what happens with usage-based insurance, or “UBI”. With UBI, you allow your insurance company to monitor your vehicle to determine your premiums. The better driver you are, or the less risk you are to the insurance company, the better rates or discounts you receive. Saving money with a UBI device sounds like a great idea, but is it?  

What is Usage-Based Insurance? 

UBI uses a device known as a telematic to monitor your driving habits. This is usually a mobile app or gadget that is plugged into your car’s dashboard. A driver simply installs the device in their car which will monitor and record information about his or her driving behavior, such as miles driven, vehicle speed, rapid acceleration, hard cornering, and hard braking. 

These UBI programs, which are now offered by many of the largest auto insurance companies, offer discounts on premiums based on how safely or how often you drive. There are two options when it comes to UBI programs. The first is “pay-as-you-drive” based on your mileage. The second is “pay-how-you drive”.  This option measures how safely you drive by collecting data on your driving behavior. 

What are the benefits of Usage-Based Insurance? 

Saving money is an important potential benefit for most policy holders. UBI may be a win-win for the policyholder and the insurance company. It incentivizes the driver to reduce the miles they drive and adopt safer driving habits. Therefore, your insurance would be based on how you actually drive rather than being based on your gender, credit score, age, and vehicle type, which is currently how your premium is set. The less risky a driver you are, or the less frequently you drive, the lower your premium.  

In addition to potential money saved, there may be some safety benefits of UBI programs. Often these programs are combined with ancillary benefits like roadside assistance, crash response, and vehicle theft recovery. Because the telematic devices have the ability to track vehicles, this could come in handy for a parent that wants to track the whereabouts of their teen driver. Several insurance companies now offer teen driving programs that allow a parent to download an app and monitor their teen’s driving score and progress.  

What are the trade-offs with Usage-Based Insurance? 

Despite these benefits, there are some trade-offs to consider. While many of us have become more accepting of sharing our personal information in this age of Facebook, social media, and online applications for everything, some prefer to guard their online privacy. Do you want your insurance company to know everywhere you went? Do you want your insurance company to have a database of your daily driving habits? It’s unclear exactly how this data would be stored and how will it be used by your insurance company.    

Some states have enacted legislation requiring disclosure of tracking practices and devices. Some insurers have even begun to limit the data they collect. However, because UBI programs are still new and evolving, there is still uncertainty surrounding the data being collected and how that data is interpreted.   

While there are a few studies to demonstrate the link between miles driven and risk, individual driving data and the specific details of a UBI plan are considered proprietary information of the insurer. UBI requires a deeper level of trust and transparency between the insurer and policyholder, and transparency isn’t something that most insurers are good at (or want to be). 

Consumers are warming up to UBI 

In May 2020, J.D. Power released a consumer sentiment survey that asked consumers about using telematics. One of the key findings in the report was that consumers were expecting to drive less in the foreseeable future (this was certainly true over the summer when the COVID-19 pandemic was surging) and 40% were considering switching to a telematics insurance program to save money. It is likely that the use of UBI programs will increase and expand with growing acceptance by consumers and advances in technology. 

Your Vehicle Insurance Decision 

While it is possible to save money, if you are a safe driver, keep in mind you might just be a bad driver and thus have to pay a higher premium. Usage-based insurance is not without its risks, but the potential reward might save you a lot of money. Whatever program you select, do so with all the facts and shop around for the best product to suit your needs. And, in an unfortunate case of an accident, please don’t hesitate to trust C. Todd Smith Law with any of your legal questions. You can also schedule a FREE Claim Evaluation here.