Pay-As-You-Drive Insurance: More Than Just a Trend?

With the economy at a low and people searching for ways to save money and lower household bills, usage-based auto insurance (UBI) is the latest trend. If you don’t put many miles on your car or you are a low-income driver, the pay as you drive insurance movement could offer you great advantages. Starting in California in 2009, drivers began to have the option to purchase insurance based on a per mile rate. While the premium still takes into account factors such as age, gender, territory and driving history, the rate may be discounted if a person drives during a safer time of the day and less often. The pay-as-you-drive policy is more or less like your electricity or cable bill, with the premium being determined by how many miles you drive a month or year. But, is this option as good as it sounds? If so, why aren’t all states offering it and getting rid of the standard rate premiums for auto insurance that we are accustomed to?

The Advantages

For those that favor this new trend, they cite the fact that usage-based insurance finally allows drivers to have some kind of control over a typical household bill. The advantages include:

  • With more people focused on saving money by lowering driving mileage, this may lower the overall amount of driving nationwide resulting in a decrease of pollution from cars, a lower nationwide demand/dependency on gas, and a nationwide decrease in crash rates.
  • It empowers customers to control their insurance cost. The majority of households would see lower costs with savings that can go as deep as 25 percent or more on the liability and property-damage portion of their insurance bill.
  • The devices used by insurance companies to track mileage also take into consideration when and how a person drives. This allows companies to now judge and adjust a person’s premium according to what really matters, their actual driving behavior.

But using this device does offer some concerns as well. According to Insure.com, here’s how Progressive’s device (an early leader in usage-based insurance programs) operates:

A device that plugs in under your steering column collects data on your mileage, when you drive, how often you drive and how you drive. Data is sent automatically to Progressive from the device via a cellular connection. Conventional factors such as your age, location, vehicle and driving record are still used in addition to usage in setting your car insurance premium.”

Hence with this system, drivers must be willing to be observed by their insurance companies. So the question remains, are customers prepared to give up their privacy for a lower auto insurance premium?

The Disadvantages

The devices used to allow the pay as you drive program gives insurance companies the ability to pinpoint a cars location, when it is being driven, and how it’s being driven. For instance, sudden breaking and acceleration such as accelerating more than 7 mph in one second may have an effect and cause a boost in your insurance rate. Other disadvantages of UBI include:

  • Technology must be developed by all insurance companies in order to support the program. The device to track driving must send the data without drivers being inconvenienced by sending it themselves.
  • The program can quickly backfire on a customer. For example, someone that logs a lot of unexpected miles, drives like a crazy person, or often drives during dangerous times such as midnight could see a large surcharge on their premium.
  • State regulators must approve the programs and then pass bills and laws to allow the policies to be offered to their state. As of now, Progressive has introduced this product in 37 states and the District of Columbia. While North Carolina has yet to implement it, they are beginning to consider and discuss it. The General Assembly in the state of North Carolina is considering a bill (which is being backed by State Farm, a major NC insurance provider) which will finally allow companies to offer the pay as you drive policy and the discounts associated with it to NC residents.

As the amount of insurance companies that are offering these usage-based policies increases, it’s beginning to look more and more like this isn’t just a trend, but the future of auto insurance. It appears like sooner rather than later, North Carolina auto insurance will be another participant in this program and people will at last be able to save money for driving less and driving safe!

For more information on Charlotte, NC insurance visit our website or call Spivey Insurance Group today at 877-318-5951!

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