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Usage-Based Auto Insurance Is Coming

Close up to an Auto Insurance Quote Request form with a pen on top

The wide-spread implementation of Usage-Based Auto Insurance (UBI) is on the horizon and will impact the way car insurance companies operate and determine rates. According to the National Association of Insurance Commissioners (NAIC), experts expect that 20 percent of all motor vehicle insurance in the U.S. will incorporate UBI in some form within five years.

What is UBI? It’s a pricing model being adopted by insurance carriers that will fundamentally alter the auto insurance industry. Insurers are offering it to consumers to monitor their driving habits with a telematics device (plugged into the vehicle’s on-board diagnostic port) in exchange for possible reductions on their insurance premiums. The device monitors the vehicle operator’s driving behavior and records data like speed, cornering and braking patterns over a specified time period.

According to research by Strategy Meets Action, an East coast insurance consultant, over 70 percent of personal and commercial insurers have usage-based insurance plans. Most of the top 10 auto insurers already have UBI programs in place.

Moreover, by the year 2020, one in five insurance company professionals predict usage-based insurance (UBI) will control more than 50 percent of the personal auto insurance market.

According to Allstate Insurance:

  • Roughly a third of all new customers enroll in Drivewise, its UBI program, where it is available
  • Seven of every 10 Drivewise customers are saving money through the program and no one receives an increase.
  • Of the drivers earning a discount, the average savings is about 14 percent per vehicle.

Progressive Insurance states more than 1.6 million drivers have used its Snapshot product since 2008, almost doubling the percentage of its direct channel customers who have tried Snapshot in the last two years, to about 35 percent.

Is Your Privacy At Risk?

Many telematics devices do not include GPS information that reveals a person’s fixed position, and insurance companies are quick to point out that no location data is collected under usage-based insurance plans. However, a recent study conducted by researchers at the University of Denver, Colorado, found that driving habits data such as speed, time of travel, number of miles driven, braking and acceleration data could provide quite a detailed picture of an individual’s movement in a defined period of time.

The scientists developed a formula and applied it to data from 30 routine trips made in and around the Denver area. In 60 percent of the trips, the formula narrowed the actual destination to within the top three projected targets.

The lesson for consumers? Be aware of potential privacy issues associated with UBI programs their carrier is using and stay informed about what kind of information they may unknowingly be sharing.

Are you concerned that insurance companies will be invading your privacy? Feel free to share your thoughts in the comments section below!

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