Usage based auto insurance isn’t really new; it’s just more sophisticated now. Insurance companies have always included different factors in calculating insurance rates. Let’s learn more about the different types of usage based auto insurance.
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What Is It?
Usage based auto insurance determines how much you pay based on how you use your car. For example, if you left your car in the garage and never drove, your rates would be low. If you lived in a high-crime area and drove recklessly, your rates would be high. Usage based insurance attempts to define the truest level of risk to determine insurance rates.
For years, insurance companies included data like driving records and geographic locations in their rate calculation. Now with technology like telematics and smartphone applications, usage can be defined much more precisely.
Some insurance companies sell insurance “per mile.” The logic is that less mileage means less risk. The rate per mile varies depending on traditional risk factors (age, history, etc.). If you drive less than 10,000 miles per year, you’re more likely to save on this type of usage based insurance.
If you tend to accelerate, brake, and corner hard, then you might be accident prone. Smartphone and onboard apps can gather driving habit data which insurers can then use to determine rates. The programs also provide audible alerts that help you correct bad driving habits. The insurer periodically reviews the data and makes rate adjustments accordingly.
Other factors that might be evaluated are time of day/night that you drive, geographic location, or number of different drivers per car. Some programs are mixed and include mileage and driving style in their data collection.
Makes Sense To Some
According to a Towers Watson poll, millennials are most likely to be comfortable with usage type insurance. Having grown up online, sharing data is not such a big deal for this generation. However, there is some concern that this type of insurance will create an unfair situation.
Suppose you’re a very safe driver but guard your privacy more than others? Some don’t want a co-pilot of this kind monitoring their every move. In cases like this, some very safe drivers who opt out of this type of program may be indirectly penalized by missing out on lower rates.
In many ways, the calculation of insurance rates is a science. If the data shows that lower rates are worth it, companies respond. Perhaps we might see these kinds of apps pre-built into cars one day. The next car you own may automatically alert you if your driving habits could be adjusted for greater safety or energy conservation.
This could help new and young drivers develop good habits. Either way, we are likely to see more of this safe technology in our driving spaces. Only time will tell how much of a consumer backlash will occur in the struggle between technology and personal privacy.
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