With the introduction and growth of usage-based automobile insurance (“UBI”), drivers should be aware of the benefits and costs of this new product. Usage-based insurance – sometimes known as pay-per-mile, pay-as-you-drive (“PAYD”) or pay-as-you-go, has introduced a new set of rating variables into the automobile insurance marketplace. Rating variables such as when, how, and how much a vehicle is driven can either replace or be used in conjunction with more traditional rating variables – age, accident/infraction history, credit history, and vehicle model – in setting insurance premiums.
UBI is often powered by telematics – technology that is either plugged into or preinstalled in the vehicle’s software. UBI permits the insurer to obtain a more targeted view of the insured’s driving, and can take a few different forms. For example, pay-per-mile insurance charges drivers specific amounts upon crossing set mileage thresholds each month. UBI programs have evolved in recent years, and insurers in UBI programs began collecting data on the time and location of where a vehicle is driven. Later developments permitted insurers to view how a vehicle was driven in real-time, including speed, acceleration, and braking levels. This new form of rating comes at a time when certain states are moving to restrict insurers’ ability to rate consumers using traditional methods like credit score or age.
The benefit for consumers of UBI is that drivers are offered the opportunity to take control of reducing insurance costs. Often, in an effort to increase participation, insurers offer discounts to drivers who switch to a UBI policy. Insurers generally promise drivers that they can save 20-50 percent under a UBI policy, and some offer discounts of 5-10 percent simply for enrolling. These programs often reward drivers for safe driving.
However, the expansion of UBI has raised privacy concerns. Generally speaking, telematics devices share real-time location data with the insurer. For those systems that work with a smartphone app and not a device, that location is continually monitored whether or not the consumer is driving. In a recent study, while drivers were willing to share some information with their insurer in exchange for discounts, a plurality of consumers found sharing their location unacceptable.
Ultimately, UBI provides tangible benefits to both insurers and insureds, but presents a significant privacy tradeoff for many individuals. As technology grows more advanced and more prevalent, consumers will have to reckon with whether they want to put a specific dollar value on their privacy.