It’s clear that the popularity of pay-as-you-drive insurance programs is on the rise.
The National Association of Insurance Commissioners (NAIC) predicts that 20 percent of all US auto insurance companies will incorporate some form of pay-as-you-drive (PAYD) program within the next five years.
But a new report suggests not all consumers are ready to embrace the trend.
According to an insuranceQuotes.com survey, conducted by Princeton Survey Research Associates International—which polled 1,001 American adults in December 2014—51 percent of respondents said they wouldn’t consider enrolling in a PAYD program.
What’s more, overall awareness of PAYD programs has decreased over the past year, with 36 percent of respondents saying they have heard of PAYD compared to 42 percent in 2013.
The report suggests these programs appeal most strongly to millennials and that many drivers have lingering concerns about how they work.
“It’s still a very small percentage of consumers involved in pay-as-you-drive,” says Mike Barry, spokesman for the nonprofit Insurance Information Institute. “I think there’s still reluctance on the part of some drivers to have a GPS device installed in their cars that’s monitoring their driving habits.”
What is pay-as-you-drive insurance?
Pay-as-you-drive programs—also known as usage-based programs—are voluntary. Drivers can earn discounts based on factors such as how well, how far and how often they drive.
Insurers can use telematics devices, smartphone apps or even existing technology built into the car (like OnStar) to record data regarding driver behavior and then transmit that to insurers to help set discounts, which typically range between 10 and 30 percent off the annual premium.
For instance, Progressive offers a program called Snapshot, which uses a small wireless device that plugs into the diagnostic port located under the dashboard of a car to capture how, when and how much someone drives.
The device records:
- How many miles you drive each day.
- How often you drive between midnight and 4 a.m.
- How often you slam on your brakes.
Once you’ve driven with Snapshot for 30 days, Progressive uses the collected data to determine your discount. The better your driving behaviors (for example, no hard braking), the better the premium discount, which can be as high as 30 percent.
Progressive isn’t the only one in the usage-based game. Many of the country’s largest auto insurers now offer some form of PAYD program, including Allstate, State Farm, The Hartford, Liberty Mutual, GMAC and Travelers.
Who is more likely to adopt a pay-as-you-drive insurance program?
According to an Oct. 2014 Towers Watson study, the number of U.S. drivers who have or have had a usage-based policy jumped from 4.5 percent to 8.5 percent between February 2013 and July 2014.
However, PAYD insurance programs don’t necessarily appeal to all ages.
Millennials are the most likely age group to have even heard of pay-as-you-drive insurance.
According to the survey, 47 percent of drivers between the ages of 18 and 29 are aware of pay-as-you-drive programs, while only 22 percent of drivers 65 or older have heard of it.
What’s more, millennials are also the most likely age group to enroll in a PAYD program.
Forty-three percent of drivers between the ages of 18 and 29 said they would consider enrolling. Meanwhile, only 36 percent of drivers between the ages of 50 and 64 said they would be interested in pay-as-you-drive, and just 28 percent of respondents over 65 said they would consider it.
According to Barry, there are two reasons for this.
“A lot of millennials are just starting their careers and looking for ways to save money. Pay-as-you-drive policies may help them do that,” Barry says.
“Also, I think millennials are more open to different ways of being rated as drivers, whereas someone who is middle-aged or older may be set in his ways when it comes to auto insurance,” he adds.
Catherine McCullough, executive director of the nonprofit Intelligent Car Coalition, a cars and technology consumer advocacy and education organization, says that millennials have a very different relationship with both technology and data collection compared to more senior drivers.
“Millennials have grown up with technology like this, and they’re more comfortable using it,” McCullough says. “They also feel much more comfortable allowing their data to be used for different purposes.”
Of those who said they wouldn’t consider signing up for a usage-based discount, 20 percent of respondents attributed this to privacy concerns.
27 percent of respondents between the ages of 50 and 64 said it was because they were concerned about their personal information being shared. However, only 15 percent of millennials shared this concern.
“Perceptions are shifting, but I don’t think we’ve clarified all of the consumer concerns around data use yet,” McCullough says.
Misconceptions about pay-as-you-drive insurance
Every insurer’s pay-as-you-drive program differs slightly in terms of the data that’s collected and how this data is used to provide a premium discount.
For instance, Allstate’s Drivewise program tracks a driver’s speed, braking habits, mileage and the time of day his or her car is being driven.
The Hartford’s TrueLane program records braking habits and mileage but also measures how quickly a driver accelerates the vehicle – however, they don’t factor in time of day the vehicle is being driven.
According to the survey, consumers have some misconceptions about the information an insurance company may gather through usage-based programs, as well as the impact that information may have on their insurance rates.
For instance, 52 percent of respondents said they think insurers can gather information about whether or not they’ve been drinking and driving (they can’t).
And 35 percent of respondents said they think driving in “neighborhoods with a lot of crime” could increase rates (it can’t).
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“I think these are some of the most interesting statistics, because it all speaks to a driver’s willingness to use a product like this,” says Dan Preston, CEO of MetroMile, a San Francisco-based startup that sells “pure usage-based” insurance policies focused entirely on how many miles you drive.
Preston says MetroMile writes policies based on traditional factors like demographics and driving history. What makes it unique, however, is that the final price is mostly comprised of a per-mile rate between two and four cents.
Mileage is tracked with a free on-board device plugged into a car’s dashboard, and Preston says drivers who log fewer than 10,000 miles a year could save up to $500 annually on auto insurance.
Despite an increased demand for this new brand of insurance (which is currently available in California, Illinois, Oregon and Washington), Preston says he constantly encounters misconceptions about usage-based insurance, particularly from older generations.
“MetroMile would be perfect for folks who are retired and don’t drive that much. But as soon as you mention a device that plugs into your car the conversation is over and paranoia sets in,” Preston says. “We’re only concerned with how many miles, not what type of miles you drive.”
Moving forward, McCullough hopes the discussion surrounding pay-as-you-drive programs (and the data they generate) will evolve beyond individual concerns about privacy and instead start shedding light on larger matters.
“We stand to learn so much from this data about big societal issues like driver safety, reducing pollution and sustainability,” McCullough says.
The PSRAI December 2014 Omnibus Week 2 obtained telephone interviews with a nationally representative sample of 1,001 adults living in the continental United States. Telephone interviews were conducted by landline (500) and cell phone (501, including 306 without a landline phone). The survey was conducted by Princeton Survey Research Associates International (PSRAI). Interviews were done in English and Spanish by Princeton Data Source from December 11-14, 2014. Statistical results are weighted to correct known demographic discrepancies. The margin of sampling error for the complete set of weighted data is ± 3.5 percentage points.