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Auto insurers want to ride shotgun with you, and there’s a growing number of people who are ready to give it a try — in exchange for lower insurance premiums.
That’s according to recent research from Nationwide, one of the largest insurance companies in the U.S. The same study shows two-thirds of consumers said they would allow a device to monitor their driving behavior if it provided a discount.
“We’re seeing a big trend now where there’s an app on your phone that gets behind the wheel with you,” says Jason Newell, founder and managing insurance broker at 303 Insurance Brokers in Denver. “It’s real-time information to determine your driving habits and see if you’re an aggressive or a safe driver.”
Usage-based car insurance uses a technology called telematics, typically a mobile app or a device that plugs into your car’s diagnostic port,to monitor your behavior behind the wheel and reward you for safe driving—or penalize you for risky behaviors. Telematics programs, such as Allstate Drivewise and State Farm’s Drive Safe & Save, are typically free to use and will also often provide feedback to help drivers make safer decisions.
You can probably get a lower auto insurance rate, typically through the form of discounts, but there’s a catch: auto insurers have the green light to take your data.
Telematics not only reveals how you drive, which is what insurers say they want to know, but it also pinpoints where you went, what time you were there, and for how long. That has spurred some concerns around privacy and how the data is used to price customers down the line.
As usage-based insurance becomes more mainstream, it may be time to decide if the potential savings are worth the privacy tradeoffs.
The Lure of Usage-Based Insurance
Exchanging driving data for a lower premium can be appealing for many. While only 10% of users who responded to the Nationwide survey said they were using telematics, that number is growing.
According to a J.D. Power survey, interest in telematics increased by 30% in 2020, and Nationwide projects 70% or more of new business will come from usage-based insurance programs by 2025.
“Most major companies have some sort of app-based tracking, and their goal is to get a better determination of each driver’s risk level,” says Newell. “That’s going to grow over the next 10 years.”
The discounts that come with usage-based insurance programs can be significant, as long as you’re a good and careful driver. With State Farm’s Drive Safe & Save, discounts can reach up to 30%. Progressive claims drivers who do receive discounts save an average of $146 per year. Low-mileage drivers can benefit, too.
“I’ve seen a large uptick of people willing to do it while they’re driving less due to COVID-19,” says Newell. “People are becoming more familiar with the concept of it, and it’ll probably be the norm in five to 10 years.”
Not only are the discounts attractive, but the use of telematics can make auto insurance pricing more fair, experts say. Car insurance rates are based on dozens of factors, including your driving record and personal demographic factors like age, education, and marital status. While telematics programs from legacy insurance companies still consider all those factors, they also base part of your rate on your driving behavior, measured by technology.
Some insurance startups, like Loop and Root, only offer usage-based insurance because they say that’s the fairest way to price customers. Loop, which launches this summer, will use two key metrics — state of roads and driver behavior — to give its customers a price.
“The byproduct is a much more competitive rate for customers who are safe drivers but have been systematically overpriced for reasons other than their driving history,” says John Henry, CEO and co-founder of Loop.
Is Usage-Based Auto Insurance Worth It?
Usage-based insurance can be a great deal for safe drivers and low-mileage drivers, but it also presents some privacy concerns. Before agreeing to be monitored, you should do research, understand the risks, and ask questions.
Lower insurance rates for people who drive safe or less frequently
Monitoring may incentivize you to be a safer driver or improve driving habits
Rates could potentially go up for what’s deemed “unsafe driving.” For example, you may be penalized if you brake too hard too frequently or get distracted by your phone while driving
Consider Your Driving Habits Before Signing Up
The best discounts for usage-based insurance are given to safe drivers and drivers who aren’t on the road often. You’ll likely save more on premiums with usage-based insurance if:
- You’re a low-mileage driver: If you drive less than 13,500 miles per year, you’ll likely see your rate go down or qualify for more discounts. The less you’re on the road, the fewer opportunities to get into an accident.
- You’re a safe and careful driver: If you show safe driving habits, you’ll most likely get a discount or a few for it. Many insurers will monitor not only your driving habits, but also your driving style. If you’re a gentle driver, you’ll get rewarded. Some companies penalize you with higher rates if the telematics technology records what it may deem risky driving behavior, like braking hard or driving at high speeds.
Make Sure You Read the Fine Print
Before you sign up, make sure you understand the program’s rules, because they can vary between companies. Every company has its own definition of what’s a “safe driver” or “low-mileage driver,” so some auto insurers may raise your premium if they view you as a risky driver. That’s why it’s important to know exactly what driving behaviors are being measured and how that might affect your premium.
You also want to know what could happen if you choose to leave a usage-based insurance program. For example, Nationwide’s SafeDrive program will let you keep your sign-up discount even if you don’t complete its four- to six-month evaluation period, as long as you insure your car with the company. With some programs, such as MAPFRE’s DriveAdvisor, you’ll lose your usage-based insurance discount if you opt out.
Data from Nationwide shows more than 60% of consumers have privacy concerns about the information telematics gathers. Auto insurers say there are safeguards in place to protect their customers’ data, but you should still check the fine print around data use and protection to make sure you’re comfortable with it.
Try Out Telematics To See if You’ll Really Save
Many legacy insurers give you an upfront discount for simply signing up for their telematics programs. For example, Nationwide SmartRide gives you a 10% discount when you sign up, and Geico DriveEasy offers up to 20% off for signing up.
“ If you really want to save money on your car insurance, you need to think about a telematics program,” says Kyle Schmitt, vice president and managing director of insurance intelligence at J.D. Power. “It’s an underappreciated way to manage the cost of your car insurance.”
Your best bet: Find a usage-based program that meets your standards and try it out to see if the savings are worth it. Worst case scenario, you opt out of the program, walk away with a potential discount, and go back to your original auto insurance plan — or switch to another insurance company.
“Most people are afraid that rates will go up, but that’s incredibly uncommon because of the way regulation works,” says Schmitt. “A lot of the time the rates can’t go up, but they can go down.”