Have you heard of usage based auto insurance?
You may not have heard of it in its more technical nomenclature, but you likely have heard of Snapshot by Progressive Insurance, this is one of the many commercially available usage-based auto insurance products on the market today.
So, if you’ve seen a Progressive Snapshot commercial, you may have some form of familiarity.
Usage-based auto insurance is the latest product innovation by insurance companies to better align your driving behavior with the premiums that are charged.
Usage-based auto insurance uses telematics (in-vehicle telecommunications devices) to track mileage and driving behavior. These devices are very small and can be self-installed into your vehicle’s onboard diagnostics port (OBD II). Normally the device is installed for a short time, just long enough for the insurance company to accurately forecast your miles and assess how the vehicle is driven.
It’s actually very simple and easy … if you’re willing to give it a try.
Well, they actually measure many different things, like miles driven, the time of day the vehicle is used, acceleration, breaking, cornering, and in some cases airbag deployment.
It really depends on the type of device the insurance company uses, and if it ties into your car’s computer or not.
When insurance companies can use the actual driving behavior to rate a policy, the rates charged will be more accurate. Today, premiums are charged using data elements that relate to how you drive your vehicle, they are a type of proxy … like age, credit score, prior insurance experience, zip code and many others rating variables.
But actual drive data, or vehicle use can be much more precise in determining the correct premium to charge each of us for auto insurance.
Additionally, many of these insurance companies provide the consumer a portal to see how they drive, and provide recommendation on how to improve driving habits so the users can become a safer driver … one who get a better auto insurance rate.
There are many advantages to usage-based auto insurance products, and they don’t just benefit the insurance company.
Honestly, they benefit consumers and society as well as insurance companies.
So, we already know that aligning the actual driving experience with your premiums helps get a more accurate pricing, that is generally a benefit for the insurance company, but it also benefits the consumer too.
Usage-based auto insurance can provide benefits to consumers through lower rates for better driving. Right now, many safe drivers, who cannot express this through the conventional rating variables, are subsidizing higher risk … less safe … drivers.
We also identified earlier that the consumer is provided a portal that can instruct them what is considered high-risk, unsafe driving, this is excellent data that can help consumer directly understand how to control auto insurance premiums. Additionally, if the knowledge gleaned from these programs helps to control high-risk driving behaviors, we could also see a reduction in accidents, traffic congestion, and vehicle emissions.
Each of these benefits have a more macro, societal benefit to moving to a usage-based auto insurance market.
Benefits that could also be achieved from a full usage-based auto insurance market would be a reduction in claims fraud, increases in vehicle theft recovery, and it may assist in reducing parental anxiety by providing a monitor for parents when teen first take to the road.
The cost of these devices has been a large obstacle to mass-marketing these programs, along with concerns over consumer privacy.
The first challenge is changing quickly. As these programs become more accepted, the costs of the devices are dropping, and the services to transfer data more affordable.
There are already many companies who have develop smartphone applications that can determine drive signature, and account for the differences between normal phone use, other motions, and what is drive experience. The use of smartphone apps will open up an entirely new, and cost effective way to deploy these programs.
Consumer privacy does remain a bit of an obstacle. Recent surveys however have concluded that more consumer would be willing participate in a usage-based auto insurance program, suggesting that the privacy concerns are being trumped by the potential to save real money on auto insurance, and to gain the ancillary benefits provided by the consumer portals.
The privacy concerns are still very real, but over time consumers will realize that the auto insurance companies are not interested in the date for anything other than rating policies accurately, to control claims costs, and keep you insured in a way that promotes overall public safety.
There are actually two usage-based auto insurance products that we can sell at IronPoint Insurance Services. As a progressive agent, we have access to Snapshot, and we also have a new product offered through a partner company, Sun Coast General Insurance, it’s called DriveSure.
If you’re interested in knowing more about usage-based auto insurance, or SnapShot or DriveSure, please give let us know, we love to get you involved with one of these programs.
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