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Usage-based auto insurance is the newest technological innovation to sweep the industry. Although pay-as-you-go auto insurance has existed for a few years in some states, it’s only recently become mainstream thanks to improvements in wireless communication and GPS tracking. Telemetrics programs are on-board computers that monitor and report a driver’s habits, including mileage, speed and braking. The program then reports back to the insurance company, which reviews the data and adjusts the driver’s rates accordingly.
Progressive launched its “Snapshot” program utilizing telemetrics and offering discounts of up to 30% to drivers who use the device. Other insurers followed suit, such as Allstate’s “Drivewise” program and State Farm’s “Drive Safe and Save.” All of them use similar telemetrics software and offer discounts to drivers who enroll, but the amount of the discount varies from one provider to the next.
Usage-based auto insurance is not yet available in all states or through all providers, but it is gaining favor fast. In a budget-conscious economy, people are driving less in an attempt to save on gas. This translates to fewer miles driven, which in turn results in fewer auto accidents. Statistically, drivers have been in fewer collisions since the start of the recession, and this trend may continue as more people are encouraged to stay off the roads or engage in safe behaviors for immediate rewards.
Will Telemetrics Become Standard?
Although usage-based auto insurance is certainly not the standard now, it’s not hard to envision a future where all auto insurance companies monitor their drivers. It certainly makes more sense than the current model, which relies on a complicated set of algorithms and statistical data to set insurance prices.
Right now, insurers determine a driver’s risk by assessing his or her driving history and demographic information. Insurance companies must rely heavily on statistics to make guesses about a person’s behavior. This means that some groups, like young drivers, always pay more for insurance than others regardless of their individual habits. Although rates are eventually based more on a person’s own driving history, it takes time to establish that, and many drivers over-pay for insurance until that point.
Using telemetrics software would reduce the necessity of statistics and place drivers in greater control of their rates. A person’s actual behavior would set their rates. This might lead to an overall decrease in the cost of auto insurance, and the instant feedback from insurers might encourage more people to engage in safer driving practices. Long-term, telemetrics software could revolutionize auto insurance.
The Ever-Changing Role of Technology
Of course, some people are leery about the role of usage-based auto insurance in the long term. Because these programs track more than a driver’s mileage, some people are uncomfortable at the intrusion on their privacy. If telemetrics were ever to become mandatory for policyholders, many people would probably resist the change.
It’s also possible that, in the future, insurance companies may become even more intrusive. For example, a technology could be developed that senses whenever a driver is not paying attention to the road; while this would cut down on the number of distracted driving accidents, it might also be quite invasive. It’s impossible to know in advance exactly what might lie around the corner when it comes to technological innovation.
On the other and, scientists are currently in the process of developing a completely different new technology that could revolutionize auto insurance: Driverless cars. These computer-operated vehicles would remove all possibility of user error and potentially shift liability away from car owners entirely. If they become available to the public, usage-based auto insurance will no longer be necessary at all.
As technology grows and develops, insurance companies will adapt and change to new trends. Insurers are already implementing technology in many ways, from offering discounts to drivers who use GPS devices to creating apps that report auto accidents. It’s not surprising that insurers have begun to embrace telemetrics technology as a way to accurately assess a driver’s risk and set policy costs.
If you drive limited mileage, engage in safe behaviors and don’t mind the idea of usage-based auto insurance, it may be worth asking your insurer about the program. Even if it’s not available through your current company or in your state, you may still qualify for a low-mileage discount. It doesn’t hurt to ask, and expressing interest in these programs will help encourage more insurance companies to adopt them. In the long run, usage-based auto policies could contribute to an overall decrease in the cost of insurance, which is good for everyone on the road.