Usage Based Auto Insurance:

Pay How You Drive / Pay As You Drive

When buying a new car, technology in that vehicle may exist which records a variety of information on how you drive; how fast you take off, how hard you brake, your speed, and even your location, which can be used by insurance companies and law enforcement by permission or by subpoena. In cars equipped with a computer system, insurance companies now offer some devices which can plug into your on-board diagnostic II port (OBD II). (Progressive's 'SnapShot' device, Liberty Mutual's 'Onboard Advisor', State Farm's 'Drive Safe & Save', and Allstate's 'Drive Wise'.) These devices and software can access your vehicle's systems, and record information which can be used later for driver diagnostic statistics, or in some cases sent wirelessly in real time or at timed increments. At the present time, most companies claim not to use the GPS feature to track location or if you are speeding, but most experts agree that the ability is available with the current technology.)

These devices are marketed to customers as a cost-saving opportunity, because if you drive better or safer than the majority of people, the insurance companies claim that they will lower your rates. So far, no one is being threatened to have their rates raised as a result of using these devices, but it seems logical that if your rates can be lowered for good driving habits, they may be raised for bad driving habits. This method of adjusting a driver's premiums, is known as Usage Based Insurance (UBI), Pay-As-You-Drive insurance (PAYD), or Pay-How-You-Drive insurance (PHYD). There is also Mile Based Auto Insurance, which is related but more strictly tailored to the distance and frequency of a driver's use of their vehicle.

One of the selling points seems to be that most drivers think that they are better drivers than they actually are. This makes them willing to forgo some of their privacy concerns in order to save money. If when they are shocked when they get no discount from their insurer, the insurers hope that drivers may change their driving habits to make their driving safer, and thus reduce the risk and increase profits for the insurer.

Drivers may want to know how an insurance company evaluates the specifics of a person's driving approach, before deciding to opt-in to a program initially promoted to save them money on premiums. How fast is a jackrabbit start? Does that include a steady but quick acceleration from a stopped position? Does an insurance company keep track of apparent speeding, or do they just penalize a driver if a traffic stop is initiated and a ticket issued? A driving record can be created and have financial ramifications, so controlling what information is shared, stored, or evaluated should be of vital interest to an insurance customer.

In certain states, the information that can legally be used to assess a driver's insurance rates may be limited by the laws of that state. Public referendums are sometimes used to bypass the legislature and limit insurance companies directly.

In Oregon in 2006, Measure 42, which would have limited the ability of an insurance company to set rates based on credit scores, was defeated. It was defeated due to the fear that it would raise most people's insurance rates, if a company could not give better rates to customers with better credit ratings.

In Oregon, auto insurance companies can use credit scoring, make and model of a car, a vehicle's safety features, daily commuting routes and times, past driving and infraction records, daily or yearly mileage, marital status, past insurance claims, your occupation and educational level, gender and age, gaps in insurance coverage, your address or zip code, and other factors. In this light, a person who is an excellent driver but has a poor credit rating for instance, may opt in and benefit favorably from UBI.

Privacy advocates have raised concerns over the usage, storage, and possible sales to other companies of personal driving and habit information outside of its initial use. Drivers who use a roadside assistance service like On-Star, agree to a much wider data stream analysis of driving information than users of the UBI or 'pay as you drive' plans. But even with just the UBI devices and agreements, laws may change and so a drivers' information, stored now, may be sold or used for another purpose at a later date. In fact, just what information is obtained and stored in the form of data telematics, may be difficult for an insurance customer to understand.

Note: This information may also be requested or subpoenaed for law enforcement purposes in case of an accident or infraction.