How driver behavior affects the cost of auto insurance
Chances are, you’re probably a safe driver — but it’s likely that you’re subsidizing the cost for riskier drivers with your auto insurance premiums. And that means you’re paying more than you should be.
A study by Progressive analyzed more than 5 billion miles worth of driving behavior, determining a driver’s risk of accident based on a variety of factors, such as tendency to speed and the time of day a person is driving. The study found that the riskier drivers cost the insurer 2.5 times more in claim reimbursements than low-risk drivers.
“The consumer was right all along,” Glenn Renwick, Progressive’s president and CEO, says in a statement. “For most, the rates they’re paying are higher than the risk they actually present — and in many cases, much higher.”
How can you determine a driver’s risk?
A driver’s odds of getting into a crash vary based on several types of behavior, including:
- Speed — According to the U.S. Department of Transportation, more than 21 percent of crashes in 2009 were blamed, in part, on driving faster than the speed limit.
- Swerving — Failure to stay within the proper lane accounted for 17 percent of crashes.
- Under the influence — Drivers who had done illegal drugs, taken prescription medication or consumed alcohol before getting behind the wheel also were more likely to be involved in crashes.
- Miles driven — A 2010 study by the Conservation Law Association and the Environmental Insurance Agency Inc. found strong ties between a driver’s annual mileage and his likelihood of filing an insurance claim. “A vehicle’s annual mileage is an important factor in determining the overall risk presented and, thus, the premium a policyholder will pay for an auto insurance policy,” says Doug Nadeau, a spokesman for State Farm.
- Nighttime driving — The National Highway Traffic Safety Administration has found a higher risk of crashes for drivers between 6 p.m. and 6 a.m. The study authors theorized that the higher crash rate may be connected to fewer drivers wearing seat belts during that period and more drivers consuming alcohol.
Other factors that play into driving risk include inattentiveness, failure to yield right of way, overcorrecting the steering wheel and failing to obey road signs, according to Loretta Worters, a spokeswoman for the nonprofit Insurance Information Institute.
Until recently, insurance companies had no concrete way to tell the low-risk drivers and high-risk drivers apart until a driver got involved in a crash. At that point, the insurer would raise the driver’s risk profile and premium.
However, some insurers now offer usage-based programs; policyholders voluntarily install devices in their vehicles that monitor mileage and some types of driving behavior. The devices can’t tell whether the driver has been drinking, for instance, but it will be able to track the resulting erratic driving. After tracking a user’s driving behavior for a set period of time, the insurer may offer a discount if the driver is found to be “low risk.”
Progressive’s usage-based Snapshot program, for instance, bases insurance rates on three factors: the time of day the car is driven, the distance it’s driven, and the number of times a driver slams on the brakes, Progressive spokeswoman Brittany Senary says.
After 30 days, many Progressive customers will receive a discount — up to 30 percent, Senary says. The policyholder will continue to use the Snapshot device for the next six months, when Progressive will calculate a renewal discount.
Several other companies – such as State Farm, Allstate, Nationwide and Travelers — offer usage-based plans.
How consumers benefit
Traditional insurance plans rate policyholders based items such as age, driving record and geographic location. For example, drivers under 25 typically pay more than drivers in other age groups. Usage-based plans figure a driver’s risk by relying on actual driving data.
If you tend to drive a lot of miles, especially at night, and slam on the brakes, you’re probably one of the “high risk” drivers who won’t be eligible for discounts. However, you won’t be charged more than you’re paying now if you fail to qualify for a discount.
Usage-based insurance plans are best for “people who drive less, in safer ways and during safer times of day,” Senary says. “Those are the drivers who are most likely to get a discount.”