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Pay-as-you-drive insurance: How Americans could save more

Most large, nationwide auto insurers offer customers an interesting way to save on premiums: let them track how you drive.  But a new survey shows many Americans miss out on these discounts because they don’t know much about these programs.

An survey found that 58 percent of consumers have never heard of pay-as-you-drive insurance programs, such as Snapshot® from Progressive, Drivewise® from Allstate and Drive Safe & Save™ from State Farm.

These programs, also known as pay-how-you-drive insurance or usage based insurance, use telematics (technology that allows insurers to track vehicles) to gather data about driving habits and ultimately offer lower premiums to safe drivers.

But despite a general lack of knowledge about pay-as-you-drive insurance, many consumers say no way. Thirty-seven percent of people surveyed said they would never sign up. And another 35 percent would only do so for a discount of 25 percent or more.

Experts say this reluctance stems from a range of concerns, including legitimate worries about privacy to misconceptions about what insurers track. The operations director for Allstate’s Drivewise® program, Sarah Inciong, says, “There are still a lot of myths we have to dispel because this is so new.”

Many consumers are confused about pay-as-you-drive insurance

pay as you drive thumbThe survey of 1,000 U.S. adults, conducted for by Princeton Survey Research Associates International in October 2013 found that 68 percent of consumers who’ve heard of pay-as-you drive insurance do know that you pay less for auto insurance if you drive well.

But the survey found that many consumers are confused about the specifics. For example, consumers aren’t clear about the four major metrics most pay-as-you-drive programs track:

  • The speed you drive. About 41 percent of those surveyed either incorrectly said the programs don’t track how fast you drive, or they weren’t sure. Most programs do track speed, but you probably won’t get dinged for going a few miles over the limit now and then, experts say. For example, Allstate’s Drivewise® program looks for “excessive speed,” like how often you go over 80 miles per hour, Inciong says.
  • The time of day you drive. About 58 percent of consumers either incorrectly said pay-as-you-drive programs don’t track when you drive, or weren’t sure. In fact, experts say that when you drive can tell an insurer a lot. For example, a driver who battles daily rush hour traffic on the highway is riskier to insure than one who works from home, says Scott McCormick, president of the Connected Vehicle Trade Association.
  • The miles you drive.  Sixty-two percent correctly answered that pay-as-you-drive programs track the number of miles driven. But 25 percent answered incorrectly and 13 percent weren’t sure.
  • How hard you brake. And 63 percent of consumers either incorrectly said that pay-as-you-drive programs don’t measure how hard you brake, or didn’t know. In fact, how you brake is a major indicator of the safety of your driving, Inciong says.

And some consumers think that insurers are gathering information that they’re not. About 50 percent of those who know about pay-as-you-drive mistakenly said it tracks whether you drink and drive.

“It’s not a breathalyzer machine,” says Sonja Larkin-Thorne, a National Association of Insurance Commissioners consumer representative. She adds that the telematics device can give your insurer the general location of your car, but probably won’t tip them off that your car was parked at a restaurant for three hours on Friday night and you might have had a drink at the bar.

She says, “It’s designed to look at your driving habits and vehicle usage, not whether you’ve had a glass of wine.”

Pay as you drive insurance and privacy

Many consumers say they’d be reluctant to sign up for pay-as-you-drive insurance for privacy reasons. In fact, 25 percent of consumers said they’re concerned about their personal information being shared, while 20 percent said they don’t want their insurer to know that much about them.

Privacy is a legitimate concern with pay-as-you-drive insurance. “Consumers aren’t going to know the full story until there’s full and complete disclosure,” Larkin-Thorne says. Right now, not a lot is known about how these programs work because insurers guard many of the details, she says.

But others say privacy concerns are overblown. For example, McCormick says insurers are more concerned about gathering and analyzing the data as a whole to help set better rates than they are about any one driver.

Some consumers do have reason to worry – but it might be because they have something to hide that has nothing to do with their driving, he says.

For example, some consumers might be nervous about their insurers tracking their movements, he says. The Hartford’s TrueLane program, for example, uses GPS to collect location information – mostly to show consumers where certain driving events happened, according to its website.  Other programs, such as Progressive’s Snapshot, don’t have that feature – possibly to help put nervous consumers at ease.

“There will always be people who are having an affair, moonlighting when not supposed to, or partying too much and don’t want to get caught,” McCormick says.

Should you enroll in pay-as-you-drive insurance?

Most insurers offer usage-based insurance programs only in certain states because of differences in state law. Each state has different rules on what information insurers can track, how they can use that data, how they can set rates and what they must disclose to consumers. In California, for example, programs that track only mileage are available while programs that track how you drive are not.

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If you do have a program available to you, here are five tips to help you know if pay-as-you-drive insurance is right for you:

1. Assess your driving skills.  

The survey found that 63 percent said they’re either much better or somewhat better drivers than others. And only one percent said they’re worse.

Obviously, everyone can’t be above average so experts say it’s important to be honest about how well you drive. One big clue is your past driving record. If you have a history of accidents and speeding tickets you might not want to sign up, says Pat Speer, property and casualty insurance analyst for the Aite Group, who conducts research on telematics.

2. Ask a lot of questions.

Consumers should make sure they fully understand a program before signing up, Larkin-Thorne says. Here are some questions experts say you should ask:

  • What information do you track? Some companies, such as National General Insurance, track only mileage while others track how you drive and even where you go.
  • Will I get a discount and how much? Many programs advertise discounts for low mileage, good driving or both. But some simply collect your information without offering a discount.
  • How is the discount calculated? Ask for specifics about how the company decides who saves and how much. “Each company has a different approach,” Speer says.
  • Could I be penalized in any way? You should ask whether you might face any negative consequences – such as higher rates or getting dropped by your insurer – because of your driving, McCormick says.  For example, with Allstate’s Drivewise® program, Inciong, says, “The worst that could happen, if you’re a very unsafe driver, is you wouldn’t (get) any savings.” Most insurers say they won’t raise program participants’ rates for unsafe driving. However, McCormick says some companies might raise rates in the future or refuse to renew policies for bad drivers.
  • How long will the device stay on my car? Some programs require policyholders to use the device for, say, six months to get a discount while others require consumers to use it indefinitely, Larkin-Thorne says. Some track your information through an existing onboard service like OnStar.

3. Get the policy in writing.

Don’t just rely on what your insurance company or agent tells you, Larkin-Thorne warns.  Your policy should tell you exactly what is tracked, how the information will be used and whether it will be shared with a third party and, if so, whether that includes information that would identify you. “Find out what rights you’re giving up or signing away,” she says.

4. Don’t plan to game the system.

Think you can let up on your lead foot or stop partying until 2 a.m. while you’re being tracked, then revert to your old ways? Don’t count on it, Larkin-Thorne says. You might be able to drive more carefully for a little while, but it probably won’t last for the six months or longer the device is on your car. Some programs, such as Allstate’s require you to leave the device on as long as you’re in the program. “People tend to go back to their old ways eventually, so the company is going to be able to measure your real driving habits,” she says.

5. Make sure the program pays off. If you do sign up for a pay-as-you-drive program, take a hard look at the actual savings you get and see if it’s worthwhile. “You won’t really know until you see your bill,” Larkin-Thorne says.

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