Understanding Usage-Based Auto Insurance And Its Benefits

Usage-based insurance (UBI) is a type of auto insurance that calculates your premium based on your driving behaviour. The insurance company uses a telematics device, such as a plug-in device or mobile application, to track factors like your mileage, speed, acceleration, braking habits, and the time of day you drive. UBI is offered as an optional program by many auto insurers and can be mutually beneficial – you may earn a rate reduction, and your insurer uses the data to more appropriately price your policy.

How usage-based insurance works

Usage-based insurance (UBI) is a type of car insurance that bases the cost of a policy on how safe a driver's habits are. UBI is an optional program offered by many auto insurers, and it helps to align your auto policy's cost with your driving habits. While traditional auto insurance uses factors such as your age, location, and motor vehicle report to determine your risk for an accident, UBI calculates your rate by analyzing how often and how safely you drive.

Your driving behaviour is typically measured using a plug-in device or a mobile app for a period of months. The two basic types of UBI programs are driving-based and mileage-based. Driving-based programs measure factors like how hard and how often you brake, how quickly you accelerate, and the time of day you drive. Mileage-based programs only measure how many miles you drive.

Both types of programs rely on telematics to gather information about your driving behaviour. Telematics can transmit data from moving vehicles and share it with an information centre. This data is then used by your insurance company to calculate your premium, with safer drivers often receiving discounted premiums.

To get started with UBI, you need a way to transmit data about your driving to your insurance company. This can be done through built-in telematics systems like OnStar or SYNC, a device plugged into your car's diagnostic port, or a smartphone app. Some insurance companies offer a choice of data collection methods, depending on where you live.

After your UBI program concludes, your insurance company will take the data into account when calculating your premium. It's important to note that your rate could increase or decrease based on the results of the program. While most companies only use the data to calculate discounts, some may raise your rates if you don't score well. Traditional auto insurance pricing factors, such as your driving record, credit, vehicle type, and location, are still generally built into your rate as well.

UBI can be beneficial for both insurance companies and drivers. Drivers who exhibit safe driving habits may be able to lower their auto insurance policy rates, while insurance companies benefit by motivating policyholders to drive more safely. Safe drivers can typically save between 10% and 40% on their car insurance bills, but it's important to pay attention to the behaviours your company tracks as they vary by company.

Pros and cons of usage-based insurance

Usage-based insurance (UBI) is a type of auto insurance that bases the cost of a policy on a driver's habits. UBI programs record information about driving behaviour, such as speed, acceleration, braking, cornering, mileage, time of day, and phone use while driving. This information is then used by insurance companies to determine discounts or, in some cases, surcharges. While UBI has been hailed as an innovative way to encourage safer driving and lower insurance premiums, there are also concerns about customer privacy and the accuracy of the technology.

Pros of Usage-Based Insurance:

• Discounts for Safe Drivers: UBI programs can provide immediate savings for good, safe drivers, with most insurance companies offering discounts of up to 25%.
• Encouraging Better Driving Habits: By tracking driving behaviour, UBI programs can incentivise drivers to improve their habits, leading to fewer accidents, infractions, and claims.
• Improved Data Accuracy: UBI provides current and ongoing data about driving behaviour, allowing for more accurate calculation of rates and discounts.
• Collision Investigation: Telematics devices can assist in investigating accidents by providing data on the speed and direction of vehicles involved.

Cons of Usage-Based Insurance:

• Customer Privacy: Critics argue that UBI systems collect a significant amount of personal information, including location and driving habits, raising concerns about data privacy and potential cyberattacks.
• Inaccurate Assessment: The technology may not always accurately interpret driving behaviour, and certain circumstances, such as emergency braking, may not be taken into account.
• Potential Surcharges: In some jurisdictions, insurance premiums can increase if a driver's telematics data indicates unsafe driving tendencies.
• Limited Context: UBI devices may not capture important context, such as the type of roads driven on or the reason for late-night driving.

Types of usage-based insurance

Usage-based insurance (UBI) programs generally fall into two categories: driving-based and mileage-based.

Driving-based

Driving-based UBI programs monitor driving behaviours such as:

• Mileage
• The time of day you drive
• Changes in speed
• Acceleration
• Braking habits
• Phone use
• Cornering
• Driving style

These programs are sometimes referred to as pay-how-you-drive, and they may give you an immediate discount of 5-10% when you sign up.

Mileage-based

Mileage-based UBI programs, also known as pay-as-you-drive, pay-as-you-go, or pay-per-mile plans, only track how many miles you drive. With these programs, the insurance company will often charge you a monthly base rate plus a per-mile charge.

Companies offering usage-based insurance

Usage-based insurance (UBI) is a type of auto insurance that calculates the cost of a policy based on how safe a driver's habits are. UBI uses data collected by the driver's vehicle and analysed by the insurer to determine the discount the driver is eligible for.

Allstate:

Allstate's Drivewise program is available in 48 states and includes crash detection as a free safety feature. The Drivewise app tracks driving behaviour and mileage and is available for iOS and Android devices. Allstate claims that using the Drivewise app could save you up to 40% on your premiums.

Geico:

Geico's telematics program, DriveEasy, is available in 37 states and Washington, D.C. The DriveEasy app automatically tracks driving activity and provides feedback to help you improve your score. Geico does not specify how much customers could save, stating only that the savings can be significant.

Metromile:

Metromile is currently only available in eight states: Arizona, California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia and Washington. Metromile says its customers save an average of 47% on their car insurance premiums. Metromile tracks your mileage and bases your rates on your driving habits.

Root:

Root is not available in all states. As of 2024, it’s unavailable in Alaska, Hawaii, Idaho, Maine, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, North Carolina, Rhode Island, South Dakota, Vermont, Wyoming or Washington, D.C. Root uses a mobile app to track your driving behaviour and claims that good drivers can save up to $900 using Root instead of a traditional insurance company.

Amica:

Amica's StreetSmart app is only available in select states. As of 2023, it’s available in Connecticut, Oregon, Colorado and Arizona. Through the StreetSmart app, participants can earn rewards based on their driving habits. Rewards can be redeemed for gift cards from retailers like Amazon, Best Buy, Sephora, Target and more.

Progressive:

Progressive's Snapshot tool is available in Washington, D.C., and all states except California. Progressive says that customers saved an average of $231 per year using the Snapshot program. Progressive gives you a discount automatically when you sign up for its Snapshot usage-based insurance program.

Esurance:

The Esurance DriveSense app measures a range of driving behaviours, such as miles driven at high speeds, hard braking and major speed changes.

Liberty Mutual:

The Liberty Mutual RightTrack program tracks nighttime driving, braking and acceleration.

Nationwide:

The Nationwide SmartRide app measures miles driven, hard braking, acceleration, idle time and night-time driving.

State Farm:

The State Farm Drive Safe & Save mobile app measures mileage and behaviours like acceleration, braking, cornering, speed and distracted driving.

Travelers:

The Travelers IntelliDrive app captures the time of day you drive, along with your speed, acceleration, braking and distractions.

Privacy concerns

Usage-based insurance (UBI) is a type of car insurance that bases the cost of a policy on how safe a driver’s habits are. Data for UBI is collected by the driver’s vehicle and analysed by the insurer, which then uses it to determine how much of a discount the driver is eligible to receive. The better the driver, the better the discount.

Allowing your auto insurer to track your driving habits raises privacy and security issues. The use of UBI has been described as "taking the spy along for the ride" and the "surveillance monster".

There are concerns about how the presence of surveillance technology in cars makes people’s day-to-day practices visible and measurable. Converting personal tasks that are traditionally immune from oversight into objective standardised records to which financial consequences are attached could undermine a sense of freedom, autonomy and dehumanise the driver.

There are also concerns about how the data could be used. Insurers must ensure that the use of the information meets with all privacy laws and regulations. For example, there are concerns about the data being shared with commercial parties or being breached and misused.

The concerns then build up towards the core of constitutional privacy law. Tracking data could be used as evidence if subpoenaed and transferred to police and courts for use in criminal and civil proceedings.

There are also concerns about the data being used to penalise drivers. For example, drivers could be punished for committing perfectly reasonable and safe acts, such as braking hard to avoid a child or animal running into the road. There are also concerns about drivers being punished for driving late at night, when they may be making an essential trip to the emergency room.

Regulatory Responses

California has effectively prohibited the use of UBI, with California law explicitly prohibiting the use of driving factors other than mileage. Other states, while permitting the use of UBI, limit or burden the entry of insurers into this market and distort their ability to price auto policies in a manner that reflects the UBI data models.

While UBI has been shown to have a positive impact on road safety, there are valid concerns about the impact of the technology on the privacy of drivers.

Frequently asked questions