Usage-based insurance is a type of car insurance that bases the cost of a policy on how safe a driver’s habits are. Data for usage-based insurance (UBI) is collected by the driver’s vehicle and analyzed by the insurer, which then uses it to determine how much of a discount the driver is eligible to receive. The better the driver, the better the discount.
Key Things to Know About Usage-Based Insurance (UBI)
- Drivers usually save 10% to 15% annually with usage-based insurance.
- The best discounts go to safe drivers who don’t rack up a lot of mileage, though pricing factors vary between companies.
- Data can be gathered directly from your vehicle’s telematics system, through a device plugged into the car’s diagnostic port, or through your smartphone.
- Most insurers will only use the data to calculate discounts and not to raise your rates.
- 19 major insurance companies offer usage-based insurance.
Is Usage-Based Insurance Right For You?
The greatest discounts for usage-based insurance are given to safe drivers who drive fewer miles than the average motorist. That makes these plans ideal for some students, retirees, stay-at-home parents, and drivers who don’t commute in a car because they work from home or take public transit to work. You can reference the checklist below for more specifics.
Usage-based insurance is right for you if:
- You drive less than 11,500 miles per year. That’s how many miles the average driver logs annually, according to the Federal Highway Administration. So if you drive that much or more, you aren’t likely to save on premiums by picking a usage-based program.
- You drive gently. Many insurers track your driving style, and they will penalize you for things like braking hard or driving at high speeds.
- You don’t mind being tracked. Make sure you are comfortable with your insurance company monitoring your daily driving, which in some cases can include location data. Given that most of us carry Internet-connected cell phones with GPS location tracking, adding your car insurance company to the list of corporations that can track your movements may not be of great concern.
If you pass those tests, read on to learn the ins and outs of usage-based insurance plans.
How Usage-Based Insurance Works
Usage-based insurance works by using technology to collect data on your driving habits such as how fast you drive, how hard you brake, and how many miles you drive, in order to calculate your risk level and adjust your rates accordingly.
To get started with usage-based insurance, you need a way to transmit data about your driving to your insurance company. You may be able to use built-in telematics systems like OnStar or SYNC. If your car doesn’t have a compatible system built in, your insurance company will provide a device that will plug into your car’s diagnostic port, or you might be able to use a smartphone app to track your driving habits.
How Usage-Based Insurance Can Save You Money
As an incentive to sign up, you’ll generally start with an introductory discount of 5% - 10%. Then, after a data collection period of up to 6 months, the insurer will calculate a discount tailored to your driving that, in most cases, will be applied at the start of your next renewal period. While some insurers say a discount of up to 50% is possible, discounts for most drivers will fall somewhere in the range of 10% - 15%.
Most insurance companies promise that data collected about your driving will be used only for discounts, not to increase your premiums. Progressive and Geico are the exception to this rule: It is possible to get a surcharge instead of a discount with their programs. Also be aware that, as with any auto insurance policy, your base premium may increase each time your policy is renewed, diluting the value of your discount.
How Usage-Based Insurance Promotes Safe Driving Habits
To help you save and to encourage safety behind the wheel, most programs provide feedback on your driving. If you use this information to improve your habits, you can save even more. Some examples of available tools are:
- Allstate Drivewise and Metromile analyze driving habits and display reports after every trip.
- Some Progressive Snapshot devices will beep to notify you when you’re braking hard enough to be penalized.
- In almost all cases, you can log into the insurance company’s website to see how your driving is affecting your insurance premiums.
The details of each program ultimately vary pretty widely, though. Each insurer emphasizes different behaviors as they apply discounts.
What Your Rates Are Based On
How many miles your drive. Travelers and National General only track miles driven, and discounts are purely based on how many miles you log.
How safely you drive. Allstate Drivewise does not offer low-mileage discounts. They just want to see that you avoid unsafe behavior, such as hard braking, high-speed driving and using your car during late-night hours.
One-time scoring of driving habits. Nationwide only tracks your driving for an initial period to score your driving habits. You then send the tracking device back, and any discount will be applied for as long as you keep your Nationwide auto coverage.
Safeco’s Rewind offering works similarly. It’s an accident forgiveness program that gives you a 4-month opportunity to prove that your driving habits are safer than your driving record would indicate.
“Pay as you drive.” Metromile puts you in direct control of how much insurance you buy each month. Their policies start with a low base insurance rate, and when you use your car, you’re charged an additional fee for every mile driven.
There are currently 19 major insurance companies offering some form of usage-based insurance. You can see details on each of their offerings in the table below. Keep in mind that not all of these programs are available in all states.
Where to Get Usage-Based Insurance
| Insurance Program | Factors for Calculating Pricing | Additional Considerations | Availability |
|---|---|---|---|
| AAA Drive | Distracted driving Smooth driving Speed Time of day Fatigue | Maximum discount of 30% | Varies by club |
| Allstate Drivewise | Speed Time of Day Braking | Instead of discounted premiums, drivers get rebates every six months based on driving behavior Can use smartphone app instead of device connected to car’s diagnostic port | All states except CA |
| Allstate Milewise | Miles driven | Policyholders pay a daily rate plus a per-mile rate Trip costs are deducted from account after each trip | AZ, FL, DE, ID, IL, IN, MD, MN, MA, MO, NJ, OH, OK, OR, PA, SC, TX, VA, WA, WI, and WV |
| Geico DriveEasy | Distracted driving Hard braking Cornering Smoothness Road type Distance driven Time of day Weather | Poor driving score may result in a higher rate | AL, AZ, AR, CO, CT, DC, FL, ID, IL, IN, IA, LA, KY, MD, MI, MO, MN, NC, NE, NV, NJ, NM, OH, OK, OR, PA, SC, TN, TX, UT, VA, WA, WI |
| Esurance DriveSense | Miles driven Speed Time of day Braking | Initial discount of 5% | AL, AZ, AK, CO, CT, GA, IA, ID, IL, KS, KY, LA, ME, MD, MI, MN, MO, ND, NE, NJ, NM, NV, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, WA, WV |
| Farmers Signal | Distracted driving Braking Speeding Time of day Miles driven | Initial 5% discount; maximum 15% discount at renewal Additional 10% discount offered to drivers under 25 | All states except FL, HI, NY & SC |
| The Hartford TrueLane | Time of Day Speeding Acceleration Braking | Initial discount of 12% discount; maximum discount of 25% | All states except AK, CA, MA, HI, LA, MT, NC and RI |
| Liberty Mutual RightTrack | Miles driven Nighttime driving Braking Acceleration | Maximum discount of 30% Tracking available through the mobile app, plug-in device, and windshield tag | AL, AR, AZ, CO, CT, DC, DE, FL, GA, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, NE, NH, NJ, NM, NV, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WI, WV |
| MercuryGO | Braking Acceleration Speed Cornering Phone use | Initial 5% participation discount; maximum discount of 40% at renewal | AZ, FL, GA, IL, NJ, OK, TX, and VA |
| Metromile | Miles driven | Driver pays a monthly base rate (from $29) plus a per-mile charge Per-mile costs are charged only for the first 250 miles/day (150 miles/day in NJ) | AZ, CA, IL, NJ, OR, PA, VA and WA |
| National General Low-Mileage Discount | Miles driven | Only offered to OnStar subscribers Must drive less than 15,000 miles/year | 35 states |
| Nationwide SmartRide | Miles driven Nighttime driving Acceleration Braking Idle Time | Initial discount of 10%; maximum discount of 40% Data only tracked for 4-to-6-month evaluation period | All states except AK, CA, HI, LA, and NY |
| Nationwide SmartMiles | Miles driven | Driver pays a base rate plus a per-mile charge (up to 250 miles per day) Maximum 10% discount for safe driving after the first renewal | All states except AK, HI, LA, NC and NY |
| Progressive Snapshot | Miles driven Hard braking Driving between midnight and 4 a.m. | In some states there is no initial discount until after 30 days of data collection. After 75 days of data collection, premium is calculated for next renewal period. Drivers can save an average of $156 a year. Customer might be assessed a surcharge instead of a discount | All states except CA |
| Root Insurance | Focused driving Braking Turning Time of Day | Mobile app measures driving metrics for several weeks prior to providing initial quote Maximum 30% discount for safe driving after the first renewal | All states except AK, HI, ID, MA, ME, MI, MN, NC, NH, NJ, NY, RI, VT, WA, and WY |
| Safeco RightTrack | Miles driven Braking Acceleration Time of day | After 90 days of data collection, the discount will be applied Maximum discount of 30% | All states except AK, CA, DE, HI, ME, and NC Plug-in program available only in NY |
| State Farm Drive Safe & Save | Miles driven Acceleration Braking Turns Speed Distracted driving | Initial discount of 5%; maximum discount of 30% Data tracked for 4-to-6-month evaluation period before each renewal | All states except CA, MA and RI |
| Travelers Intellidrive | Time of Day Speed Acceleration Braking Distraction | Maximum discount of 30% | AL, AZ, AK, CO, CT, DE, FL, GA, ID, IL, IN, IA, KS, KY, ME, MD, MA, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NC, ND, OH, OK, OR, PA, SC, SD, TN, TX, UT, VT, VA, WA, DC, WI and WY |
| USAA SafePilot | Speed Acceleration Braking Miles driven Location | Initial discount of 10%; maximum discount of 30% | AK, AR, AZ, IA, ID, KY, MD, MO, MT, NM, OH, OR, SD, TN, TX and VA |
Information up to date as of May 2023
Tips for Finding the Best Usage-Based Insurance
- Confirm the availability of programs in your area. Usage-based insurance programs are offered by insurance companies in almost every state, but your options may be limited depending on what state you live in. For instance, the only major companies that offer usage-based insurance in California are Root Insurance, Metromile, National General, Nationwide, and Farmers.
- Shop around to find the best deal. Once you have identified companies that offer usage-based insurance in your state, you should compare quotes from at least three of those companies to make sure you’re getting the best rate. Typically, usage-based insurance programs will give you an initial discount for enrolling in the program, which will be factored into your quote. When you renew your policy, your discount will be based on your actual driving habits.
- Make sure to understand how the program works. Consider what factors each company uses when determining pricing and choose a program that will track your best habits. For instance, if you have to drive late at night for work or other reasons, you should choose a program that doesn’t factor in what time of day you are driving.
- Consider factors besides price. Many usage-based insurance programs require you to download their app and agree to be tracked by GPS. Make sure you are okay with being tracked before signing up for a usage-based insurance program.
Ask The Experts: Privacy Issues And Usage-Based Insurance
Allowing your auto insurer to track your driving habits raises privacy and security issues that most driver don’t need to concern themselves with. To get a better understanding of how consumers can protect themselves, we ask a panel of industry experts for their insights.
- Are there any laws that restrict how insurance companies use data that they collect from usage-based insurance devices? Should there be?
- Are insurance companies required to notify their customers if their policies for using this data change?
- Under what circumstances can an insurer be compelled to provide telematics data to the courts or to government agencies?
Ask the Experts
Associate Professor of Law at DePaul University College of Law
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Payne H. and Charlotte Hodges Midyette Eminent Scholar in Risk Management & Insurance and Director of the Center for Insurance Research at Florida State University
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Clinical Assistant Professor of Business Law in the Kelley School of Business at Indiana University
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