Privacy concerns have limited the growth of auto insurance plans that are priced according to when, how far and how aggressively people drive. But younger drivers may soon bring the pay-as-you-drive plans into the mainstream.
Some industry insiders believe that money-conscious and mostly privacy-blind drivers in their 20s and 30s could accelerate acceptance of usage-based car insurance.
“My intuition says that younger people are a little more likely to try it, if nothing else than they pay more for insurance,” Dave Pratt, Progressive’s general manager for usage-based insurance, said in a telephone interview. “They have more to gain from it.”
Currently, it is families — more specifically, those with new teenage drivers — that remain the largest group of consumers who sign up for usage-based insurance plans, which determine rates based on factors such as a vehicle’s speed, miles traveled and time of day a vehicle is driven.
The policies, available through many of the largest insurance providers including Allstate and State Farm, can potentially save drivers hundreds of dollars a year. Many firms say a driver can save as much as 30 percent off their premiums by using data collected from driving experiences.
Plans vary by company. Progressive, for instance, tracks for six months how often a driver hits their brakes hard, the number of miles they drive and the time of day their car is in use — but not their speed. Drivers who are deemed “safe” can then reap the benefits of a discounted insurance policy as long as they stay with the company.
Heather Belka, 25, of Chicago, has taken part in Progressive’s usage-based insurance program Snapshot for five months and has already qualified for a 30 percent discount, or a twice-a-year savings of $145.
Like many young people who have grown up in a life with little privacy, Belka doesn’t care about the information her auto insurance provider collects.
“I don’t see what the concern is if they know how often I drive or how far on average,” she said. “It benefits me if they have that information.”
Add-on tracking available
In most older cars that do not have built-in devices that can be used to track driving habits, an aftermarket telematics device that plugs into a car’s on-board diagnostic port is needed.
The upfront costs of add-on devices that transmit and track driver information are still high — upward of $100 per device, a cost the insurance company eats.
Insurers may also absorb the few extra dollars each month for aftermarket devices to transmit information.
Some consumers have complained that some of these add-on devices have drained car batteries; like cellphone chargers, they are only supposed to work when the engine is on.
Over time, in-car telematics systems and smartphone apps will take over as platforms for usage-based plans. But for now, it’s the plug-in devices that worry some drivers.
They’re a sort of tether, or visual reminder, that their driving habits are being monitored from afar.
But insurers insist the devices aren’t GPS devices and don’t track a driver’s location.
“We’re really looking at how much you’re driving; your speed, hard braking and when you’re on the road,” Sarah Inciong, Allstate’s Drivewise director of operations, said a telephone interview.
“There’s definitely just an educational element in helping the customer understand how usage-based insurance works.”
Christopher DeLong, 24, of Midland, has a traditional insurance plan for his Ford Focus and Jeep Commander and says he would consider signing up for a usage-based plan. But he remains suspicious of the information insurance companies collect.
Average savings 14 percent
Allstate, which offers its Drivewise pay-as-you-drive insurance policy in 22 states, says seven in 10 customers save money through the program. One-in-three new customers that live in states that offer Drivewise choose a usage-based insurance plan.
The average savings is 14 percent, which at a national annual premium average of $1,510, according to the website QuoteHelper.com, would result in a yearly savings of more than $200.
Progressive says one in three new customers chooses its Snapshot program.
The company has more than 1 million customers using its Snapshot device in 44 states and says customers can save about $150 a year.
Some drivers who brake harshly, speed and drive during the wee hours of the morning will see little or no savings from their current rates.
Insurance companies, however, say they won’t “punish” aggressive drivers with higher-than-expected rate hikes or cancellations.
From insurers’ perspectives, safer drivers mean lower payouts — and potentially more drivers paying for auto insurance — which they believe will offset the cost of lower premiums.
“Most people drive better than average,” Pratt said. “The worst drivers cause most of the accidents.”
Usage-based plans to grow
A recent report from intelligence firm ABI Research estimates that devices that monitor driving habits could increase globally to 107 million within five years. That’s up from the approximately 6 million expected by the end of this year.
Here in the U.S., the National Association of Insurance Commissioners projects that 20 percent of all insurance plans will incorporate pay-as-you-drive features within the next five years.
And a recent survey by Lynx Research Consulting found that more than one-in-three insured drivers would consider switching from a traditional insurance plan to a usage-based plan.
But these surveys and estimations do not mean usage-based auto insurance policies will become wildly popular.
Ash Hassib, senior vice president and general manager of auto insurance at information and data provider LexisNexis, says the industry “has failed every projection that has been put out for the past seven years.
