Auto insurance companies continue to hop on the pay-as-you-drive highway, meaning more opportunities for drivers to get discounts.
In December 2011, The Hartford introduced a pay-as-you-drive auto insurance program called TrueLane, which is available only in Connecticut but should be rolled out to other states throughout 2012. Similar to Progressive’s Snapshot program, TrueLane uses an in-car device to gather data about driving behavior. That data then is sent to The Hartford for analysis and can result in a premium discount between 5 percent and 25 percent.
“Customers are becoming more and more engaged in their shopping and buying behaviors around insurance products, and we see this as a compelling next step in our ability to provide them with more flexibility in terms of features and benefits,” says Randy Termeer, The Hartford’s assistant vice president of product management. “We think it’s really going to resonate with certain types of customers.”
Mike Barry, a spokesman for the Insurance Information Institute, says pay-as-you-drive programs like Snapshot and TrueLane will keep growing in popularity as more consumers realize how much money can be saved.
How does pay-as-you-drive insurance work?
The concept is rather simple. Pay-as-you-drive programs -- also known as usage-based programs -- are voluntary. Drivers can earn discounts based on how well, how far and how often they drive. This is accomplished through the use of telematics devices, which record data regarding driver behavior and then transmit that to insurers to help determine eligibility for a discount.
Aside from The Hartford and Progressive, insurers like Allstate, Liberty Mutual, GMAC and State Farm have pay-as-you-drive programs in place.
Progressive has offered its Snapshot program nationwide since April 2011. Drivers who sign up for Snapshot receive a small wireless device that plugs into the diagnostic port of a car and captures how, when and how much they drive.
Progressive spokeswoman Brittany Senary says driving less often, in less risky ways and at less risky times of day can result in premium savings of up to 30 percent. Drivers enrolled in the Snapshot program, which is available in 39 states and Washington, D.C., are saving an average of $150 a year on their auto insurance, she says.
It’s important to note that a driver's auto insurance rates can’t go up with Snapshot or any other pay-as-you-drive program. Moreover, you can’t be penalized for going over the speed limit. And pay-as-you-drive devices don't have GPS, so insurers don't know where your car is.
Extra benefits of pay-as-you-drive insurance
Lamont Boyd, an insurance underwriting expert at credit score and insurance score provider FICO, says pay-as-you-drive programs not only benefit consumers who want to save money, but also parents who want to monitor the behind-the-wheel habits of teen drivers.
“Parents like myself want to know as much as we can about how our children are driving,” Boyd says. “This is an opportunity to get a better handle on their driving behaviors.”
Carroll Lachnit, features editor at automotive website Edmunds.com, says another benefit of pay-as-you-drive programs is that participants are judged on actual driving behavior rather than the habits of their demographic group.
“So, for example, you may be a young male driver who is very careful and very safe behind the wheel,” Lachnit says. With the pay-as-you-drive concept, "you could possibly get out from under a demographic that is usually charged a higher rate.”
Pay-as-you-drive insurance draws criticism
Despite the rise of pay-as-you-drive programs, not everyone is enthusiastic about them.
Insurance expert Frank Cacchione, CEO of New Jersey-based TNC Management Group, says consumer savings are being overstated. It’s safe to assume, he says, that the current wave of consumers who are installing these monitoring devices in their cars are safe drivers, limit their commutes to work, have been accident-free for years, and generally are in the class of drivers who already are receiving great rates.
“So providing a further rate reduction for these consumers is likely redundant and not a sustainable incentive to switch,” Cacchione says.
Furthermore, Cacchione says consumer distaste for what may be perceived as invasion of privacy will curb the pervasiveness of pay-as-you-go programs moving forward. That's especially true if it becomes possible for driving data collected by insurers to be used in court cases, he says.
“There’s a lot of work ahead to establish how this data can be used for insurance underwriting, claims litigation and other purposes,” Cacchione says. “Usage-based insurance will definitely grow in use and consumer acceptance, but there are a lot of barriers in place for it to become the pricing method that fully replaces some of the factors and data used today.”
What's down the road for pay-as-you-drive insurance?
Boyd says it’s unlikely that pay-as-you-drive programs ever will replace the way auto insurance policies are written now, and that programs like Snapshot and TrueLane ever will become mandatory.
“I don’t think anyone in the industry wants to give up what they are currently using, which has been proven to be … reliable in assigning the best price for insurance,” says Boyd, the FICO underwriter. “What many insurance companies are thinking is that this is just one more piece of information about drivers applying for insurance that we did not have before. It’s not a replacement. It’s an added value.”