Usage-based insurance (often called telematics-based insurance) is a growing feature of both personal auto and commercial auto insurance policies.
It expands underwriting from the traditional metrics of age, gender, occupation, and financial information to also include a driving evaluation (performed by a GPS unit attached to your car).
A general interpretation of these new usage-based insurance policies is that the traditional underwriting metrics are used to provide a base rate, which is then adjusted by the insurance company after considering the supplemental telematics data. For example, two people with similar ages, incomes, and occupations could get very different rates based on their driving habits. A person with superior driving habits will receive a discounted lower rate, while another person will get additional charges because of their unsafe behavior on the road.
That could either sound great or frustrating depending on how you look at it, but what are the real advantages or disadvantages of usage-based insurance? What's important to know about the service?
The Advantages Of Usage-Based Insurance
The primary reason that most individuals or companies try usage-based insurance is for the associated discounts.
Insurance companies are offering up to a 10-25% premium discount for good driving scores. For this reason alone, many people are choosing to give this type of insurance a shot. Often, if you qualify (and continue to receive the discount each year), it is an excellent reason to keep using it.
Family Member Or Employee Tracking
Frequently, insurance-approved vehicle trackers come with a software platform that enable you to track where your vehicles are and alert you if they leave a predefined territory (often refered to as geofencing).
For companies that want to monitor their fleet of vehicles or parents who want to know where their young drivers are going, telematics-based car insurance and geofencing tools can be very beneficial. You can often set up additional tracking rules, such as getting a text alert when your car exceeds the speed limit.
The driving behavior you observe when in the car with your employee or teen can be very different than their driving behavior without you present. A telematics device essentially gives you eyes on the road at all times. It will alert you of any problem drivers and let you know to which unsafe habits to address (or suffer the consequence of paying more for insurance).
If you or a vehicle you own is involved in an accident, it is much easier to do forensics when there is GPS data leading up to the incident. The authorities and insurance claims adjusters can use telematics information, such as the braking intensity, speed, and acceleration, to pinpoint what went wrong and settle the claim more accurately.
Additional Tools and Features
Many telematics car insurance platforms come with other tools to monitor and manage driving habits. These solutions will continue to update and release new tools to provide you, your drivers, and your insurance company with value.
Disadvantages Of Usage-Based Insurance
It's Too Sensitive!
Driving often requires a certain amount of hard braking and acceleration. Driver-monitoring technology does not recognize when you are being a defensive driver versus when you are acting recklessly.
For example, if you are driving in a parking lot and a child walks in front of your car, it is good and necessary to slam on your brakes to avoid harming them. In this instance, the telematics system would give you a negative mark.
Additionally, if you live in an area with a lot of traffic or fast highways, it might be virtually impossible to get a score that could lead to a discount.
Finally, we have seen complaints that certain app-based usage services (cell phone GPS apps) can't recognize when a person is driving versus simply being the passenger in a car that is braking and accelerating in an unsafe manner.
All of these are situations you cannot control and could often be good driving behavior, but will yield negative scores in insurance-approved tracking devices. Seeing data that signals a "high-risk driver," the insurance carrier will either remove your discount, raise your insurance premiums, or won't renew your policy. This is one of the biggest disadvantages of usage-based insurance.
Your driving information, location history, and more will be stored in a database and linked to your name. How this information is used beyond determining insurance rates, and in the future, is ambiguous. These telematics car insurance devices are always on and if unplugged (even for a short trip), you might be disqualified from any premium savings.
Going through the hassle of having your family or employees download apps or install insurance-approved vehicle trackers in each of your cars is frequently not worth the discount. For companies with a large fleet of vehicles in particular, installation can be a huge effort.
Plus, if you were to switch insurance carriers, you might have to remove the device from your vehicle and return it, only to reinstall another device that is approved by the new insurance carrier. This is can be problematic, especially if you prefer 6-month insurance policies.
The Bottom Line
Usage-based insurance will continue to grow and become more refined as time goes on, but is it worth it right now? If you can get a positive driving score and your insurance company offers significant discounts, it might be worth a try.