The Rise of Usage Based Insurance

Jodie Williams
24 Jun

You’re a good driver, right (right?!)? If so, you should pay less for auto insurance. Likewise, if you’re maybe not as good of a driver, it’s fair that you should pay a little more for insurance.

Hence the rise of usage-based insurance. Usage-based insurance (UBI) programs are based on telematics, a method of monitoring a vehicle through GPS and on-board diagnostics. UBI programs allow drivers the option of having premiums tailored to their specific driving patterns/habits. Drivers have a financial incentive to drive more carefully and drive fewer miles. The better their habits, the less they pay in premiums. In this article, we will take a look at the various programs offered by insurance companies and the potential savings drivers can receive by participating.


History

Usage-based programs range from simple (recording miles driven) to complex (monitoring driving behaviors). Progressive Insurance started offering a UBI product in the early 2000’s to research driving habits in Minnesota. Now, 9 of the top 10 private passenger auto insurers have UBI programs. In 2018, the Insurance Information Institute estimated that there were 10 to 11 million telematics-enabled insurance policies in place, out of some 200 million insured automobiles.*


How Driving Habits Affect Premiums

Insurers have long used usage information to underwrite policies. Questions regarding miles driven, use categories (commute, business, pleasure), employment, etc., have been on traditional applications for years. However, many drivers underestimate their mileage, which can lead to reduced rates that do not correctly reflect the risk. Continuous monitoring through UBI programs help insurers to more accurately assess the risk and set rates accordingly. 


How It Works

In order to track driving habits, insurers either use a mobile phone application, or an in-vehicle device. Different insurers measure different habits. Some insurers only track mileage, while others gather much more in-depth information like where you drive, time of day you drive, speed, number of hard brakes or accelerations. The context of the behaviors could be considered as well. Accelerating on the freeway could be considered normal, whereas accelerating in a neighborhood could be considered dangerous. 

The monitoring time also varies from carrier to carrier. Some insurers offer a discount for opting in to the UBI program, up to 10%. Progressive Insurance monitors behavior for one full policy period and a good driver can save an average of 7%. Liberty Mutual Insurance monitors for 90 days and offers savings between 5% and 30%. Nationwide Insurance offers one of the largest discounts with an immediate 10% discount at signup, and the opportunity to earn up to a 40% discount at renewal.


What’s It Worth?

So, should you opt for a usage-based insurance program? Participation in a telematics program is free of cost to the insured. There are some situations where a driver wouldn’t qualify for traditional discounts, so a telematics program could lower their premiums. For example, a young (safe) driver wouldn’t qualify for experience and persistency (length of time with the same insurer) discounts, but could still qualify for a discount through a telematics program. A driver with poor credit could offset higher premiums through a telematics program as well. 

Conversely, it’s possible you could pay more if the results from the telematics show you’re driving more than you reported, or your driving habits do not fall within the “safe” range specified by the insurer. There are also privacy concerns with tracking devices. Some drivers might not think the potential discount is worth having “big brother” track their behaviors and movements.

Ultimately the decision is up to you. To give you an idea of potential savings through UBI programs, below is a table of the average telematics discount by state:


To find out what UBI options are available to you or to get a quote, contact your Origin planner!

Reference:

*Ava Lynch, “Cheap car insurance with telematics,” The Zebra, Zebra Insurance Services, https://www.thezebra.com/auto-insurance/policies/car-insurance-telematics/#additional