What is Pay As You Drive Auto Insurance?
There are a few different types of coverage for usage based auto insurance:
1. Coverage is based on the odometer reading of the vehicle.
2. Coverage is based on the number of minutes the vehicle is being used as recorded by a vehicle-independent module transmitting data via cellphone or RF technology.
3. Coverage is based on other data collected from the vehicle, including speed and time-of-day information in addition to distance or time traveled.
With telematics usage based insurance (coverage types 2 and 3 from above) vehicle information is automatically transmitted to the system. It provides a much more immediate feedback loop to the driver, by changing the cost of insurance dynamically with a change of risk. This gives drivers have a bigger incentive to driver more safely. For example, if an employee starts working from home 3 days per week, this immediately reduces the risk of rush-hour accidents. With usage based insurance, this reduction would take effect right away.
How Much Can Drivers Save?
Pay-as-you-drive vehicle insurance programs really help drivers who do less than 15,000 miles per year. The less you drive, the higher the discount, which can range from 8% to 54%, says Tim Hogan, GMAC’s vice president of national accounts. Mileage information is collected by a telematics-based vehicle tracking system, and your discount grows for every 2,500 miles fewer you drive. For example, someone who drives between 10,001 and 12,500 miles might save 18%, while someone who drives 7,501 to 10,000 miles per year might save 26% off standard rates.
Progressive’s pay-as-you-drive program is called Snapshot. It provides discounts of up to 30% per year off its regular car insurance rates. Snapshot is currently available in 25 states. Because each state sets its own insurance regulations, the program needs approval on a state-by-state basis. Snapshot provides discounts on auto insurance based on miles driven, when the car is driven and how it is driven. Driving between midnight and 4 a.m. — the peak time for accidents — and making sudden starts and stops can impact rates.
Snapshot works only for cars built in 1996 or later because a monitoring device must be plugged into the onboard diagnostic port. The device monitors mileage, time of day when the car is driven and driving style. There is no GPS tracking system, so it doesn’t track where the vehicle is driven.
GMAC Insurance, in collaboration with OnStar, offers a discount in 35 states for those who have a GM vehicle equipped with OnStar and drive fewer than 15,000 miles per year. By the end of 2011, GMAC hopes to offer the discount in almost every state.