How Does Usage-Based Car Insurance Work?

These programs typically evaluate factors such as speeding, acceleration, harsh braking, mileage, and even the time of day you drive. Based on your driving performance, you receive a driving score and often receive helpful tips to improve it. The better you drive, the more favorable your insurance rates become.

One compelling reason to consider usage-based insurance is the impact of inflation on traditional car insurance costs. By embracing UBI, you have the opportunity to reduce your insurance expenses.

Interestingly, more and more drivers are being presented with the option of choosing a usage-based or telematics insurance policy. In a survey conducted by TransUnion in February and March 2022, it was found that 40% of respondents were offered a telematics program—a significant increase from the previous figure of 32% in November 2021.

Additionally, the percentage of individuals who were offered such a program and opted in rose from 49% to 65%, indicating a growing interest in this type of insurance.

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How Does Usage-Based Car Insurance Work?

How Does Usage-Based Car Insurance Work? Usage-based insurance programs utilize advanced technology to gather telematics data from your vehicle, including cellular, GPS, or other sources. These programs monitor various driving behaviors such as speed, acceleration, hard braking, hard cornering, miles driven, time of day, and even phone usage while driving.

The method of collecting driving data depends on your car insurance company. It can be done through built-in systems in your car like BMW ConnectedDrive or OnStar, a device plugged into your car’s OBD-II port like Nationwide SmartRide, a smartphone app like Allstate Drivewise or Farmers Signal, or a device called a “tag” that pairs with your smartphone via Bluetooth, such as Liberty Mutual Insurance RightTrack.

Depending on your location and insurance provider, you may have the option to choose how the data is collected. Liberty Mutual Insurance RightTrack, for example, offers the choice between a tag, plug-in device, or mobile phone, while State Farm Drive Safe & Safe allows you to choose between a smartphone app or your car’s OnStar system.

Once your driving habits are tracked over a certain period, your insurer evaluates the telematics data. The impact on your car insurance premium will vary depending on your insurer, but typically, safe driving habits can lead to a discount or other benefits. Traditional factors like your driving record, credit, vehicle type, and location are also considered in determining your insurance rate.

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Is Usage-Based Insurance Worth It?

Usage-based insurance has the potential to lower your car insurance rates if you’re an excellent driver. However, according to the TransUnion survey, only 48% of those enrolled in telematics programs saw a decrease in rates, while 30% experienced no change.

It’s crucial to pay attention to the fine print because some insurance companies may increase your premiums if your driving scores poorly during the review phase of a usage-based insurance program. Although this practice is not allowed in some states, the survey revealed that 18% of drivers faced higher rates, and 4% were uncertain about the impact on their rates.

Despite these considerations, the majority of participants in telematics programs expressed satisfaction with their choice. Approximately 64% reported being “very satisfied” or “extremely satisfied,” while 26% had a neutral stance.

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Overview of Usage-Based Insurance Discounts

Various car insurance companies offer discounts and additional benefits through their usage-based insurance programs. Here is an overview:

• Allstate Drivewise: Offers cash back every six months for safe driving, along with Allstate Rewards.

• American Family Insurance KnowYourDrive: Provides a 10% enrollment discount and potential discounts of up to 20%.

• Farmers Signal: Grants a 5% enrollment discount, with up to 15% discounts upon policy renewal and additional discounts for young drivers. Participants are also eligible to win up to $100 in monthly rewards.

• Liberty Mutual RightTrack: Offers discounts of up to 30% for the duration of the policy, depending on your state.

• MAPFRE DriveAdvisor: Provides a discount at policy renewal.

• Nationwide Insurance SmartRide: Gives a 10% enrollment discount, with potential discounts of up to 40% upon policy renewal.

• Progressive Insurance Snapshot: Offers a discount based on the state’s policies.

• Travelers Insurance IntelliDrive: Provides a participation discount for the first term, with potential discounts of up to 20% upon policy renewal.

• Safeco RightTrack: Offers a participation discount and savings ranging from 5% to 30%.

• State Farm Drive Safe & Save: Adjusts the discount at policy renewal times, typically every six months.

• USAA SafePilot: Provides an enrollment discount of up to 10% and potential discounts of up to 30% upon policy renewal.

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What to Find Out Before You Sign Up for Usage-Based Insurance

Before enrolling in a usage-based insurance program, it’s essential to consider the following:

Availability: Verify if the program is offered in your state by checking with various auto insurance companies.

Program Rules: Understand the specific rules and criteria of the program. Learn which driving behaviors are measured and how they can impact your insurance rates.

App Usage: If the program involves using a smartphone app, familiarize yourself with its functionality and ensure it accurately distinguishes your driving from being a passenger.

Opt-Out Consequences: Determine the consequences of opting out of the program. Some programs may require an evaluation period, while others may revoke the UBI-related discount upon opting out.

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Concerns Regarding Driving Data Tracking

Not everyone feels comfortable with their insurance companies having access to detailed information about their driving habits. According to a survey by Arity, the top concern (35%) among respondents regarding telematics programs was how driving data is used or shared. Additionally, 34% expressed concerns about the accurate and fair assessment of driving data, while 31% worried about potential increases in car insurance rates. Some respondents also felt participating would be too much of a hassle (25%) or wouldn’t result in sufficient savings (24%).

FAQs

What may usage-based premiums be based on?

With usage-based insurance your premiums are based on your habits behind the wheel and how much you drive your car. You could get cheaper rates if you’re a safe or infrequent driver.

What are usage-based models in insurance?

Usage-based car insurance (UBI) is a type of auto insurance where premiums are based on the actual amount of driving a person does. Premiums are calculated based on the number of miles driven, the time of day, and the type of roads driven.