Drive Less, Pay Less with Usage-Based Insurance

Article excerpt

For years, drivers paid less for auto insurance if they reported low mileage. Now, insurers are using high-tech devices to track customers' habits and offering deep discounts to those who not only drive less, but cautiously.

In the United States, Progressive Corp. and GMAC Insurance, a unit of GMAC Financial Services, are the first and the largest companies to roll out this type of plan. At least two smaller companies, including Unigard Insurance Co. of Bellevue, Wash., a unit of QBE Insurance Group of Australia, are poised to start similar ones soon. Companies in Canada and Italy have programs, and Hartford Financial Services Group Inc. is testing the same technology in Connecticut.

Drivers who participate in these plans have devices installed in their cars that, depending on the technology used, can track the number of miles driven, the speed at which cars are driven and even how often and how hard the brakes are used. By allowing their habits behind the wheel to be monitored, drivers get lower insurance rates - - or pay higher premiums if they're lead-footed road hogs.

Usage-based insurance pricing would mean an estimated two-thirds of households would pay less in premiums than they do now, according to a report by the Hamilton Project at the Brookings Institution, a think tank. Researchers Jason Bordoff and Pascal Noel calculated average savings at about $270 per car, per year. Some analysts and insurers believe that after a slow start, usage-based insurance could take off now that higher gas prices are forcing consumers to drive less anyway.

Proponents of these plans say they have the potential to help ease traffic tie-ups and reduce carbon emissions by rewarding customers for driving less. Fewer miles on the road means fewer accidents -- and fewer claims for insurers. With pay-as-you-drive insurance, drivers in the United States would reduce their mileage by about 8 percent, with $51.5 billion in social benefits mostly from reduced congestion and accidents, according to the Hamilton Project.

Later this month, Progressive says it will re-introduce and expand its program, formerly known as "TripSense." Available only in Michigan, Minnesota and Oregon, TripSense subscribers get a special device that plugs into their car's diagnostic ports -- the place mechanics plug into when troubleshooting. The Progressive device, however, keeps track of when, how far, and at what speed the car is driven. Every six months, drivers must remove the device and upload stored information to a computer and send it to the company.

When Progressive's new usage-based program, known as "MyRate," is launched, the technology will require less driver effort. This program uses a telematic device, which gathers driver data and wirelessly transmits it over a cel lphone network. Progressive says it will track how often and how hard drivers brake and use the braking information when calculating rates. This system doesn't include a global positioning system, so it won't track a driver's whereabouts. Drivers get back a periodic report that tells them how many miles they've logged and other feedback about their driving habits. Based on the data, they'll receive discounts ranging as high as 60 percent, depending on the state.

But the device could raise rates for some drivers. In some states where it's permitted by law, drivers would be assessed a 9 percent surcharge for logging excessive miles or driving at high speeds with hard braking, said Richard Hutchinson, a general manager for Progressive. …