Imagine a world in which your auto insurer monitorsyourdriving using a cell phone, embedded technology, or a device. The insurance company receives data on your driving which, in turn, helps to determinethe amountyou pay for coverage.This is a reality today for some—it’s called usage-based insurance (UBI) or telematicsandincreasing numbers ofinsurers are offering this option.If you’re thinking of signing up, make sure to thoroughly understand the program, including the pros and cons.
TOP CONSIDERATIONS
How UBI works.UBI tracks driving behavior through devices installed in a vehicle or through smartphones. The devices can measure miles driven, time of day, where the vehicle is driven, rapid acceleration, hard braking, hard cornering, cell phone usage and airbag deployment.Depending on the insurer and what is allowed in the state,the data collected is then used byinsurersto help determine premiums.
UBI premiums vs. traditional auto premiums.There are several variations of UBI including pay-as-you-drive, pay-how-you-drive, pay-as-you-go and distance-based insurance. Traditional auto insurance relies on actuarial analysis of data including driving records, credit-based insurance scores, personal characteristics, vehicle types, garage locationsand more. A UBI program adds individual driving behaviors as an additional rating factor. UBI may directly impact your premium because programs associate costs with individual and current driving behaviors, instead of relying on statistics based on past trends and events. For example, if you mainly drive short distances at slower speeds, you will probably be charged less than a driver who drives long distances at high speeds.
Pros and cons of UBI.Like any policy there are several advantages and downsidesto UBI.
Pros:
Premiumsshould bepricedmore accurately by linkingcoststo driving performance.
If you havedriving habitsassociated with lower risks, it can help save you money.
It can motivate drivers to improve driving habits such as avoiding hard stops or bursts of acceleration.
Real-time tracking may accelerate the response time if you’re in an accident.
Cons:
Insurers tracking mileage and monitoring behaviorraisesprivacy concerns.
The technology is still relativelynewand insurers are still developing how raw data collected will be used to price auto insurance policies.
Not everyone is a better than‘average’driver and may not be eligible for discounted rates.
THINGS YOU SHOULD KNOW
Honestly evaluate your driving habits:While the commercials for UBI promote the discounts drivers can receive, itcan alsolead to higher premiums. Before making the jump to UBI,know what you are signing up for.
Knowwhat data is collected:Make sure you trust your insurer with yourinformation. Research what devices will be used to monitoryourdriving and fully understand what behaviors will be tracked.
Prepare for the future of UBI coverage:As tracking technology develops, UBI will become more common.Mobile phone apps are also being used to monitor driving behavior. If there are flaws in your drivinghabitsyou should start trying to correct them, as the technology shift suggestsUBI may becomethe mostcommon way to determine auto insurance premiums.
TOP THREE THINGS TO REMEMBER
UBI or usage-based insurance uses information about your driving behavior to determine your auto policy premium, as opposed to traditional auto policies that use actuarial analysis of data like driving record, vehicle type, and insurance credit score.
Conduct an honest assessment of your driving behavior to determine if UBIcanofferyou discounts.
Know exactly what driving data is collected and used by your insurer to determine your UBI premium.
About the National Association of Insurance Commissioners
As part of our state-based system of insurance regulation in the United States, the National Association of Insurance Commissioners (NAIC) provides expertise, data, and analysis for insurance commissioners to effectively regulate the industry and protect consumers. The U.S. standard-setting organization is governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews, and coordinate regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally.
