Mileage-Based Auto Insurance
Technology is truly revolutionizing the insurance industry. Not only are the days of written quotes and paper applications long gone, but major insurers are also doing away with some of the oldest rating factors. Instead, they are beginning to favor highly customizable policies that more adequately reflect the true level of risk a customer poses.
Today, online car insurance quotes level the playing field for insurance companies and make it increasingly difficult to acquire and keep customers. Since it's easier than ever to compare prices amongst companies, insurers are looking for every possible opportunity to get the edge on their competition. The latest product of this is mileage-based insurance.
What is Mileage-Based Insurance?
Basing insurance rates on the true, documented driving habits of insured drivers is a literal game changer. Previously, insurance companies had to guess approximately how many miles a person traveled annually or hope that their customer's estimate was true. However, since many people are aware that higher mileage can result in higher premiums, customers weren't always truthful. So, insurers have found a way to get the truth.
Over the past several years, this new technology has become increasingly popular amongst virtually all of the major insurance carriers. However, the relatively new act of monitoring driver habits goes by a couple of different names. In addition to mileage-based insurance, you may also hear this term referred to as telematics. Whatever your insurer calls their program, they all essentially have the same function: reporting your driving habits to your insurer.
Some companies only track the number of miles driven by each vehicle per month or policy period. Other insurers will give you a discount or penalty based on a number of driving habits. Since each system is different and may operate with different technology, it's important to ask your agent about the various driving habits that will be monitored so you can be especially careful.
How Does It Work?
Most mileage-based systems require access to an OBDII port, which can be found on the majority of vehicles built in the last twenty years. This port is located just under the steering wheel or near the fuse panel. Your insurer will give you a small device to plug into the OBDII port, which will report your driving habits to their driver tracking system.
In order to determine whether or not your vehicle has this port, you can go to any auto parts store that performs free engine light indicator tests. Most retailers that offer this service will use the OBDII port to plug in their computer that performs the test. A store employee should be able to quickly tell you if the port is present or not.
While the driver-tracking device will not use GPS to report your actual location, it typically will have the ability to record and report miles driven per trip, stops, braking habits, speed, acceleration rate, deceleration rate, and time of day. Since it is necessary to install a device in each vehicle on your policy, this is a vehicle-based discount program and any discounts or penalties will be enforced on the vehicle/s enrolled. This can be good or bad, depending on your situation.
Unfortunately, if you have a high-mileage and a low-mileage vehicle, the one that travels more can't reap the discount received by your car that spends most of its time in the driveway. However, if you are able to do so, you may choose not to enroll your high-mileage vehicle in the telematics program and therefore avoid a penalty or increase in premium. Don't try to enroll both vehicles in the program and then switch the device to a different car since most are programmed to recognize what vehicle they are installed in.
How Each Rating Factor Impacts Your Premium
- Miles Driven
Many of the systems will immediately report your daily miles driven. Driving less than 25,000 miles annually will give you a discount in most of these programs. Any amount less than that will increase your discount. However, going over the company's maximum allowable mileage could result in a penalty, rate increase, or removal from the program.
- Braking Habits/Deceleration
Most drivers don't really give much thought to how hard they brake while driving, but enrollment in a driver-tracking program may mean it's time to pay attention. Since insurance companies take "hard braking" to mean that you were speeding and had to stop suddenly to avoid a collision, you may be penalized for having multiple "hard braking events." Your telematics device will inform your insurer if your vehicle comes to an abrupt stop, or slows dramatically in a very short time span.
While there is currently no way for your insurance company to know whether your not you drive at or below the speed limit, they can set an overall limit on acceptable speeds. For most programs, driving over 80 miles per hour will result in a negative score on your mileage-based discount.
- Acceleration Rate
As with the hard braking category, your driver-tracking device will report any instances of your vehicle drastically increasing in speed in a short period of time. Since this could indicate dangerous activities like drag racing, this habit could hurt your discount.
- Time of Day
Unlike the aforementioned rating factors, this one can help or hurt you. For drivers who primarily drive during low-risk times of day, you should see a boost in your discount amount. On the other hand, if you tend to do most of your driving late at night or during rush hour, you could see your discount decline since you're on the road at the riskiest times of day.
What Companies Offer This Feature?
All programs have slight variations in discount amount, habits to be monitored, and required enrollment steps (some require e-mail updates for enrollment), so if you're looking for a company that offers this type of program, shop around first. You may find that one company suits your needs better than another.
- Allstate Insurance - Drivewise
- State Farm - Drive Safe & Save
- Progressive - Snapshot
- Nationwide - SmartRide
- National General Insurance - Pay as You Drive (PAYD)
- Travelers - IntelliDrive
- The Hartford - TruLane
- Esurance - Esurance Pay Per Mile
- Metromile - Pay Per Mile Insurance
- Liberty Mutual - Onboard Advisor (for commercial lines)
Who Can Benefit From Mileage-Based Insurance?
Clearly, anyone who drives infrequently could potentially benefit from a low mileage discount. However, since this isn't the only rating factor for many of the driver-tracking programs, there are other points to consider. For one, if you tend to let others drive your vehicle, this program may not be for you. Since there is currently no way for the device to recognize who is driving the vehicle at a given moment, you are subject to your friends and family member's driving habits if they get behind the wheel of your car. Unfortunately, all it takes is one bad road trip to lose your discount. Furthermore, individuals with older cars may not be able to participate in this program if their vehicle isn't equipped with an OBDII port.
Although the technology is new, it looks like it won't be going anywhere any time soon. If you don't currently use a mileage-based insurance program, it's a good time to try one out since it could help you save money on your premium and for the time being, you have the option of leaving the program at your leisure. In the future, all insurance companies may enforce driver tracking as a mandatory program with no way to opt-out.
Whenever you have questions or concerns about any program or car insurance discount that is available or already added to your policy, be sure to talk to your agent. He or she is trained to answer all of your questions. There's no harm in asking and if you do decide that a mileage-based program isn't for you, you still have the option of removing or keeping it off your current policy.