Usage-Based Insurance: Is It Here to Stay?

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It’s called usage-based insurance (UBI). Progressive has Snapshot. Allstate has Drivewise. Nearly every major auto insurance company has jumped on board with this innovative technology. The process is simple: Plug a small device into your car, drive safely, and enjoy discounted insurance rates. So is UBI right for you? Will every insurance company be tracking your driving one day? We’ve researched the burgeoning usage-based insurance landscape and found some surprising information. Even the insurance companies may have to switch roads. Read on to learn why.

What Is Usage-Based Insurance?

UBI popped up in the last couple of years as a new way for insurance companies to analyze your personal driving habits. It’s considered a product of “telematics,” which essentially means information technology in your car.

Does it sound a bit big brother to you? You’re not alone. But the insurance companies have promised that the goal is not to spy on you. In fact, they said, it’s to save you money! And UBI very well might mean cheaper car insurance, provided you’re the right kind of driver.

Once you’ve purchased UBI, your insurance company will send you a small device that attaches to your car and records certain driving data, like:

• Miles driven
• Rapid acceleration
• Hard braking and turning
• Phone usage, and more

Your insurance company then uses the data to make a choice about you: Are you a good driver or a bad driver? If you’re the former—congratulations! You get a car insurance rate discount. But if you’re the latter, you might actually see your rates increase.

“It just makes sense,” Progressive says. After all, why should you, someone who drives safely, pay as much as Speedy McBrakesalot down the street?

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Which Companies Offer UBI?

Progressive was first to the market when they began offering discounts by tracking miles driven with GPS and cellular technology. As tech capability increased, so did the number and sophistication of UBI devices and programs. Now, depending on your area, you can purchase one of these usage-based auto insurance policies:

• Allstate Drivewise
• Esurance Drivesense
• The Hartford TrueLane
• National General Low-Mileage Discount
• Nationwide SmartRide
• Progressive Snapshot
• Safeco Rewind
• State Farm Drive Safe & Save
• Travelers Intellidrive

Should I Purchase UBI?

UBI may be right for you if:

• You go with the flow. If you avoid slamming your brakes, speeding, and using your smartphone in the car, you’ll likely be considered “low risk” and receive discounts.
• You want to up your drive-game. Most UBI providers allow you to access your driving data online. UBI could help you become a better driver because you can check your stats and learn areas to improve.
• You’re not a road tripper. If you drive less than the average person (13,500 miles per year), UBI may mean lower rates for you.
• You’re not nervous about big brother. Yes, they’re watching you. Sort of. The insurance companies make compelling claims about protecting your privacy and information. But if you’re the kind of person who’s wary of organizations keeping tabs on your driving habits and location, UBI probably isn’t the right fit.

What Should We Expect for the Future of UBI?

Despite the auto insurance industry heavily marketing UBI in recent years, adoption by the public has been slow. A 2015 study found that although 39% of consumers were aware of UBI programs, only 5% have actually enrolled. So does this mean that UBI is only an auto insurance fad, destined to fade like “Duck Dynasty” and designer jogger pants? We don’t think so.

We think that, in the near future, all auto insurance will be usage based. Like many industries, it’s inevitable that as the sophistication of telematics increases, insurance companies will need ways to more accurately underwrite and price their products down to the individual level. They just need to figure out how to make it more appealing to you, the driver.

Until then, a few unresolved questions remain surrounding the future of UBI:

• Who will create the data? Currently, the insurance companies are collecting their own data using plug-in devices and smartphone apps. But car manufactures have begun incorporating usage-based data into the vehicles themselves. They want in on this game, too.
• Who will own the data? Regardless of whether the insurance companies or the auto manufacturers generate the data, there’s one big problem: It’s not portable. Your driver data will be stuck with one company or one car, and those organizations are not likely to share it with anyone else (they don’t want you to switch after all!). This is why we think the future owner of your usage-based information will be you.
• What does this mean for the consumer? Much like you have a personal credit score, we think you’ll one day have a personal “driver score.” You’ll own this score and grant permission to organizations, like insurance companies, to pull your score for providing auto insurance quotes.

Like online news listicles, usage-based insurance is here to stay. Whether purchasing UBI coverage is right for you (before it becomes standard) is up to you. But we can help. Check out our auto insurance company reviews, or find out which carriers are the cheapest in your state. Then ask your insurance sales agent about usage-based insurance offered in your area.