Initially thought of as an experiment, usage-based auto insurance has quickly become a mainstream product, and steadily growing in rapid force. While many companies slowly introduced usage-based insurance programs overseas and in a few US states, the landscape has quickly changed over the past year.
This “Pay-As-You-Drive” program offers drivers deep discounts, based on real-time analysis of driving habits.
ABI Research estimates that by year 2017, more than 89 million consumers will choose a usage-based program as their insurance choice. As more insurers implement national pay-as-you-go programs, usage-based insurance will take over the market. Those insurance companies unwilling to offer usage-based insurance will be faced with the challenge of securing loyal customers.
Drivers enrolled in the program save an average of a few hundred per year. However, when this program hits national status, the discounts will become much more competitive among insurers.
Premiums are typically determined according to general demographics such as car model, age, and previous claims history. Usage-based insurance determines premiums by how safely the car is driven and how often the insured actually drives.
Insurance companies typically rate consumers on factors such as the driver’s age, driving experience, gender, marital status, professional affiliations, and intrusive information like credit scores. Usage-based insurance rates the driver’s actual driving habits.
Consumers agree to the automated transmittal of real-time driving data, via a device plugged into the car’s onboard computer. These after-market devices simply plug into the same data port EPA uses to check emissions. The device records and wirelessly transmits the information back to the insurer. Information such as how fast the car is driven, rapid accelerations, decelerations, how often the brakes are used, RPMs, mileage and aggressive maneuvers are all recorded for the insurance company.
After a 30-day wait, customers can access policy information online, to see driving habits and the amount of discounts earned. This program can potentially become a self-teaching tool, helping the insured adjust hazardous driving.
After completion of the six month policy term, customers return the device and receive a final discount.
The Pros and Cons of Pay-As-You-Go
Saving money is everyone’s favorite catchphrase and usage-based insurance saves consumers a few hundred dollars a year. There are environmental benefits — less unnecessary driving will equal less emissions. There is less risk for insurance companies and big cost-savings for responsible customers
It’s even more enticing for stay-at-home types that don’t drive very often. It seems switching over to a usage-based policy just makes sense.
As good as it would seem there can be some drawbacks. Some critics argue that these plug-in monitoring devices are invasive. Additionally, how accurate are these devices? When inaccuracy is involved, drivers could pay for acts they didn’t commit.
So, pay-as-you-go usage-based auto insurance isn’t so perfect after all.