Letting Your Car Insurance Company Ride Shotgun Could Save You Money

In exchange for a bit of your data, you can potentially save a great deal on car insurance (but only if you are a good driver or only drive a few miles). For most plans, being a good driver means you do not frequently hard brake, idle, speed, or check your phone while driving.

“Good drivers should pay less,” the director of insurance for the Consumer Federation of America, Robert Hunter, told NerdWallet. “How you drive, and not who you are, should determine your rate.”

Car insurance companies determine rates by examining a combination of driving records and demographic info like age, gender, marital status, credit history, and more.

While usage-based insurance still factors demographics and past incidents into rates, it also bases it on driving behavior data monitored by an app or plug-in device.

The first major company to adopt UBI (Usage-based insurance) was Progressive in 2011, and other insurers were quick to follow. Farmers, State Farm, Allstate, Liberty Mutual, GEICO, and Nationwide all have implemented usage-based programs.

Some programs, like Progressive’s Snapshot, will charge more for reckless driving. Others may only take away the initial discount. According to Scott Bruns, a State Farm director, companies look for patterns rather than isolated incidents, so you wouldn’t be penalized for hard braking if you occasionally did it. Link and/or quote

Root Insurance, a start-up founded in 2015, only offers plans based on users’ driving data. It records driving data for 30 days, then offers users a plan for a reduced price or, as happens to about 15 percent of drivers who download the app, denies coverage entirely. In general, the rate a driver gets for the plan will last for the duration of coverage. Root’s CTO, Dan Manges, told the New York Times that they could reduce rates by 52 percent for the best drivers. Link and/or quote

Discounts like this may explain why usage-based insurance is gaining in popularity. According to a 2018 J.D. Power study, 10 percent of insurance customers used UBI, up from 8 percent in the previous two years. Customers also cited speeding alerts, vehicle tracking, and driver coaching as important factors for why they chose to utilize the UBI programs.

A Farmers agent in Grand Rapids, MI said he expected over half of auto insurance policies would be usage-based in 10 to 15 years. Some might switch over during the pandemic when driving less frequently or having shorter commutes.

Some carriers are even offering checks to customers because of the steep decline of personal travel.

The rise of usage-based insurance has caused concern among privacy advocates, and California’s insurance department does not allow UBI due to privacy issues.

According to Purdue University UBI researcher and professor Ting Zhu, customers were more likely to drop usage-based auto insurance following a 2013 data breach into Target that released millions of people’s personal information. In addition to assessing driving performance, insurers collect data location data – information consumers might not want to risk exposing in the case of a hack.

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