More and more insurance companies are offering usage-based insurance. Instead of using traditional risk assessment, these policies rely on feedback from your actual driving habits. There are two basic variations of this insurance:
- Pay By The Mile – These are literally based on the mileage you drive, without other considerations, and are somewhat analogous to minutes-based cell phone plans.
- Good Driving Habits – These discount programs require installation of a "black box" type device that sends information on other driving factors as well as mileage. For example, the Snapshot® program from Progressive receives information on mileage, speed and time to determine whether you are slamming on your brakes, or driving at high-risk times.
The common thread is some sort of tracking device. Is it worth the benefits to have such a device installed in your car? Let's consider pros and cons.
- Less Expensive Coverage – Advocates claim this saves money by tailoring your coverage. Why pay for risk factors that don't apply to you? Indeed, if you are a safe driver and drive infrequently, you are likely to save money either way – through pay-by-the-mile insurance or safe driver discounts.
- Makes You a Better Driver – It's less tempting to engage in risky driving behavior if you know you are being monitored and will pay extra money for the privilege. Theoretically, this should reduce driving overall, and make driving safer.
- Good for Teenagers – Since teenagers are considered higher risk (and for good reason), they will benefit the most from the above two categories – they will save more money and are less likely to succumb to the temptation to drive recklessly.
- Theft/Accident Assistance – Vehicle tracking capability may help if your car has been stolen, or is involved in an accident.
- Lack of Privacy – By installing a tracking device, you are insuring that your location can be tracked at all times. Civil libertarians and privacy advocates may object.
- Incorrect Risk Assessment – The devices are not aware of other conditions such as the type of road you drive on (primarily interstate, dirt road, hilly and curvy roads, etc.) or bad weather, and thus the insurance company may misinterpret your driving habits.
- Overage Charges (Pay-As-You-Go-Only) – Like the cell phone analogy, overage charges for driving excessive miles can be painful.
- Fees and Installation Costs – Some programs have limited installation charges and fees, others are considerable. Make sure you have a full understanding of all fees and costs before signing up.
- Future Changes – Companies like Progressive focus on discounts, not penalties for poor driving habits. Penalties don't apply now – but why wouldn't they in the future? If you are an insurance company and you have evidence that a driver engages in risky behavior, you'd be foolish not to charge for that.
Devices can currently monitor speed but not speeding per se – unless you are going over the speed limit allowable anywhere. That capability will probably exist someday and penalties will result, since insurance companies have incentive to develop this technology. One could argue this could be used to deny future accident claims.
So, the next time Flo creeps out of the shadows and offers you a tracking device, consider your driving habits. If you drive a lot (more than 15,000 miles per year), at high-risk times, and tend to speed or do jackrabbit starts or slam on your brakes, politely decline. If you are a safe driver and drive sparingly, try it out. If you're a civil libertarian, enjoy the lack of monitoring while it's still available to you. Who knows what the future will bring?