The hot new concept being marketed by auto insurance carriers is the use of usage-based telematics as a way for safe drivers to reduce their auto insurance premiums. GEICO calls their program Drive Easy, Progressive calls their program Snap Shot, and Travelers calls their program Intellidrive.
These new usage-based insurance policies use traditional underwriting metrics as well as the supplemental telematics data to determine your policy premium. All other things being equal, a policy which shows “safe driving” telematics data will receive a discounted (lower) premium; but what insurance carriers do not advertise is that a policy which shows “unsafe driving” telematics may actually see the premiums go up.
Some of these systems require you to install a device, which the carrier provides, in your car which collects this usage-based telematic data. Other carriers require all household drivers on a personal auto policy to download their telematics app to their smartphone – once installed, the carrier requires that all household drivers leave this app on at all times.
Either a device or a smartphone app monitors driving through the use of GPS. The system monitors such things as how fast you drive relative to the posted speed limit; how aggressively or non-aggressively your drive; and how hard you accelerate and brake.
On face value this sounds like a great idea: you use the app, drive safely, and your auto premiums will go down – right? Unfortunately, this is not always the case. While those who are deemed to be “safe” drivers may see additional discounting to their auto premiums, those who are deemed “unsafe” drivers may actually see their premiums go up based on the collected telematics data.
One of the biggest problems with these telematics apps is that they are very sensitive. Driving often requires a certain amount of hard braking and acceleration, especially if you drive on crowded roads. Further, drive-monitoring technology does not always recognize when you are being a defensive driver rather than acting recklessly. For example: if you are driving in a parking lot and a car starts to back up out of a space in front of you, in this situation it is imperative that you brake aggressively. In this instance, the telematics system would give you a negative mark for braking aggressively even though doing so was the safe thing to do. Or, if you are driving on a busy highway with a posted speed limit of 65 miles per hour but the flow of traffic is 75 miles per hour, you would receive a negative mark for keeping up with the traffic – even though it would be less safe to obey the 65mph speed limit and impede the flow of traffic. Lastly, even if you are a safe driver, telematics systems may flag you for driving to locations that are considered high-density, have a history of auto break-ins, or where auto accidents are more common.
Another issue arises when telematics apps cannot determine whether you are driving the car or are merely a passenger in a car. If you happen to be a passenger in a car where the driver frequently accelerates, brakes hard, or drives over the speed limit, the telematics system would give you negative marks even though you are not the driver.
When carriers require you to install one of their data-collecting units to each covered vehicle, in lieu of an app on each driver’s phone, the device will be recording data based on the how the car is being driven regardless of who is driving it. If one of the cars on your personal auto policy is often driven by someone other than the drivers listed on the policy (remember, a personal auto policy allows you to lend your cars to anyone you like) and if the telematics system deems this person an “unsafe” driver, then your premiums may actually go up just because you were kind enough to lend your car to a friend.
If you choose to utilize one of these usage-based telematics systems, the insurance carrier will require that all household drivers listed on the policy participate in order for your policy to be eligible for these usage-based discounts. If the other drivers in your household are not taking “driving safely” as seriously as you are, your auto insurance premiums may actually go up instead of down.
While you may have the best of intentions to drive safely once you have chosen to utilize a usage-based telematics system, the examples cited above are only a few ways that usage-based telematics may actually increase your auto insurance premiums instead of decreasing them. Further, it is not 100% clear exactly what data carriers collect and are using to evaluate your future premium pricing. Your driving information, location history, and more will be stored in a database and linked to your name. How this information is used beyond determining insurance rates – now and in the future – is ambiguous and may be deemed by some as an invasion of privacy. These telematics systems are always on and if they are unplugged (even for a short trip), you may be disqualified from any premium savings.
In addition to raising your auto insurance premiums, an insurance carrier may even decide to non-renew your policy if they deem you to be an unsafe driver based on the telematics data collected on you and your household drivers.
Usage-based auto insurance will continue to grow and become more refined as time goes on, but is it worth it right now?