Pay-as-you-go, or telematics-based, auto insurance allows drivers to link their premiums to their driving patterns.
Initially, this usage-based insurance based premiums on miles driven. Today, telematics software is very sophisticated and rewards safe driving behaviors. Miles driven have far less of an influence.
How Does It Work?
The idea is simple. The driver buys a policy and enrolls in a program through an insurance company. The driver downloads an app to their smartphone which tracks data via GPS. If the driver does not have a cellphone, the insurer provides a device that plugs into the vehicle to collect data. This device must be returned to the insurer if the driver leaves the program.
Each program runs for a specific time (typically 30 or 90 days) at which time the insurer reviews the driver’s data and adjusts their premiums accordingly. The driver can review their data and progress at any time through the app or an online portal.
More than one driver on the same policy can participate in the program and drivers can withdraw from the program at any time.
How Much Can You Save?
Safeco data suggests a good driver could save over $500 annually, based on past data, but of course savings depend on a driver’s behaviors. Drivers can see their projected savings at any time through the app or online portal.
Many insurers guarantee a discount at the end of the program, no matter how well a person drives. This discount often rolls over at renewal and may also apply if you buy another vehicle.
The collected data offers drivers an opportunity to monitor their driving to improve their performance and further lower their premiums.
Data is only collected while the driver is enrolled in the program and when they’re driving. Insurers use the data to evaluate driving habits to calculate premiums, but they don’t sell it to third-parties.
Risk and premiums increase when drivers travel between midnight and 4am, when they brake hard, and accelerate quickly. The total miles driven can also impact premiums, but not as much as these driving habits.
Once all drivers on the policy have completed the program, the insurer calculates the new premium and notifies the policyholder. If the premium changed, they also issue new policy documents.
The software that tracks driving habits is very sophisticated. Nonetheless, drivers should monitor their data to ensure trips are properly categorized. If you travel as a passenger and a driver, only driving counts towards your discount.
Of course, the greatest responsibility is maintaining safe driving behaviors. Pay-as-you-go can offer great savings, but it could potentially lead to higher premiums if you don’t perform well.
Is It Right For You?
Pay-as-you-go insurance can be a smart choice if you believe you are a good driver, don’t drive late at night, and don’t spend many hours behind the wheel.
If you’re still unsure, give us a call. We’ll review the terms and conditions of a telematics policy, compare it to your existing coverage, and recommend what best suits your situation.