Usage-based insurance: letting your driving set the price

How usage-based insurance works

A standard premium is built from facts about you that rarely change: age, record, car, ZIP code and an estimate of your mileage. The National Association of Insurance Commissioners (NAIC) describes usage-based insurance as a type of auto insurance that tracks mileage and driving behaviors, so the insurer can line up the premium with how you actually drive. The insurer collects the data for a trial period or for as long as you stay enrolled, assesses it, and sets the premium accordingly.

• A phone app records trips through the phone's sensors while you drive.
• A plug-in device goes into the car's diagnostic port, usually under the dashboard. You install it yourself.
• Equipment built into the car by the manufacturer can send the data instead, if you agree to share it with the insurer.

The label covers several designs. The NAIC lists pay-as-you-drive, pay-how-you-drive, pay-as-you-go and distance-based insurance. Some score how you drive. Others, including pay-per-mile insurance, turn the part of the premium tied to mileage into a charge that rises and falls with the miles you drive. Many programs mix the two.

State regulators treat these programs as part of the price. Wisconsin's insurance commissioner describes usage-based insurance in its consumer guide and suggests asking your agent about its risks and benefits, and Wyoming's Department of Insurance publishes a consumer guide to them.

What the data can include

Each program decides which data it collects and which of it counts toward your price. The NAIC lists the elements telematics devices measure that interest underwriters:

• Miles driven, the base of every mileage-based price.
• Time of day you are on the road.
• Where the vehicle is driven.
• Rapid acceleration, hard braking and hard cornering.
• Air bag deployment, a sign that a crash happened.

The NAIC's own pricing example, below, also turns on speed. Not every item above feeds your price in every program, and some programs collect more than they score. The program's terms are the only reliable list.

Can it raise your price?

It can. The NAIC's own example is that a driver who drives long distances at high speed will be charged a higher rate than one who drives short distances at slower speeds. Whether that shows up as a smaller discount, no discount or a surcharge depends on the insurer's program, and the rules depend on the state: the NAIC notes that many states require insurers to get approval before using new rating plans.

The same insurer can run a program differently from state to state. WalletHub, a comparison site, reports that Allstate's Milewise per-mile policy also prices driving behavior such as speeding and sudden braking in some states and not in others.

Ask the insurer three things in writing: whether the program can raise the premium, whether the result follows you after you leave the program, and what happens if you stop sharing data partway through. A careful style helps, but the data can also show habits, like late trips or heavy traffic, that you can't easily change. If your price rises at renewal, our guide to why a premium goes up covers what to ask.

Privacy questions to ask first

A telematics program creates a detailed record of where and when a car moves. The NAIC notes that tracking mileage and behavior in these programs has raised privacy concerns, and that some states have passed laws requiring insurers to disclose their tracking practices and devices. Read the program's privacy notice and terms before you enroll, not after.

1. 1 What is collected, and which items count toward the price.
2. 2 How long it is kept, and whether it is deleted when you leave the program.
3. 3 Who it is shared with: affiliates, data firms or other insurers.
4. 4 Whether it can be used in a claim, for example to reconstruct a crash.
5. 5 How to opt out, including data a car maker may already be sending.

If an answer isn't clear, ask your state insurance department; our state cost pages name each regulator.

Who tends to gain

Usage-based pricing tends to reward drivers whose real habits look better than their profile: a young driver with a careful style, a household that rarely drives at night, or someone with a short commute. It suits less well when the car is often driven late, in heavy stop-and-go traffic, or by several people with different habits. A clean record still matters most to the base price; see how your driving record sets a price.

1. 1 Get a regular quote first, so you know the price the program has to beat.
2. 2 Ask the three price questions: discount only or surcharge too, how long it lasts, and what leaving the program does.
3. 3 Read the data terms and decide whether the discount is worth what you share.
4. 4 Compare a mileage-only option if you mostly drive little; the pay-per-mile calculator finds the break-even.

Questions drivers ask