Pay-As-You-Drive Gaining Popularity

Posted & filed under Car Insurance, Pay-as-you-Drive Insurance, Technology.

Edmunds is running a story this week on the increasing number of motorists who are considering the switch to pay-as-you-drive auto insurance policies, the type of coverage where your premium is based on the actual miles driven, and not an estimate. As telematic technology such as Onstar becomes a more common piece of equipment in modern vehicles, more and more insurers are likely to begin offering such policies. At the heart of the attraction is the fact that consumers who drive less and are therefore risking fewer accidents are able to save money so long as they are willing to let their insurance provider monitor their mileage and/or driving behavior.

Carroll Lachnit, an editor at Edmunds.com said, “This type of insurance will most benefit a safe driver who falls into a high-risk category. For example, teenagers who would normally face higher rates because of their perceived risk could save money by proving they are careful behind the wheel.”

As more states approve such coverage programs, motorists can expect to see them popping up all over. Most recently, California approved pay-as-you-drive plans for AAA and State Farm. Allstate currently offers a program called Drive Wise in Illinois, and plans to expand that into other states this year, and in the 27 states where Progressive’s Snapshot program is available, more than 100,000 drivers ave signed up for it.

Both the Allstate and Progressive programs use driving behavior in order to determine the level of risk each driver represents, based on mileage, braking and acceleration patterns, and at what times of day or night the car is typically driven. All of this information can be transmitted via telematics devices, which has spurred privacy advocates to caution us that such programs could eventually allow insurance companies to access too much of their clients’ information, including using GPS to learn their common destination. Insurance companies, on the other hand, maintain that the information they gather is limited to when, how safely, and how far a vehicle is driven, and does not include either the vehicle’s speed or its GPS location.

It will be interesting to see how both the privacy advocates and insurance companies react as telematics technology evolves.