February 10, 2022 | Hugh Allen, Product Research Manager

Is Usage-Based Auto Insurance Worth It?

Usage-based auto insurance is growing in popularity. Allied Market Research projects that the global usage-based auto insurance market will reach $149.2 billion by 2027, with North America maintaining the largest share.

Usage-based insurance takes a couple of different forms in today’s US property and casualty market. Most offerings allow a policyholder to receive a discount for safe driving habits on a traditional auto insurance policy. The carrier monitors driver behavior through devices installed directly into the vehicle sensor ports, customers downloading mobile apps that track performance or some newer car models’ embedded devices. Some new products on the market combine driver performance and total milage activity to define the monthly rate. Others simply track behavior for a certain period and rate future renewals accordingly.

How Much Can Drivers Save With Usage-Based Insurance?

On average, car insurance costs $139.50 per month in the US, according to Bankrate. As consumers seek ways to save money and cut down on monthly bills, many look to insurance coverage. A recent ValuePenguin survey found that 42 percent of consumers reduced their auto insurance coverage in 2020. However, of those who reduced their insurance coverage, 63 percent say they regretted it.

Usage-based auto insurance is often a great way to cut costs, without sacrificing coverage. Drivers typically save 10-15 percent with usage-based insurance. Depending on their state, some drivers can save closer to 30 percent of their premium.

Who Makes a Good Candidate for Usage-Based Insurance?

Safe drivers looking to lower their premium make great candidates for these products, including individuals with driving experience who are new to the US or heavy public transit commuters looking for price breaks for low mileage and behavior. However, drivers who consistently speed over the posted limit, accelerate or brake heavily, or those who drive late at night should not consider usage-based insurance.

Usage-based programs are also great for young, inexperienced drivers with parents who want to track and coach their children on safe driving techniques. Since the devices and applications monitor driving habits such as speeding, braking, cell phone use, etc., usage-based insurance policyholders become more aware of their driving habits and adjust accordingly.

What Other Factors Should I Consider Before Switching?

While more drivers today are comfortable sharing their mileage for lower prices—54 percent, up from 41 percent in 2019—other information captured and shared in usage-based insurance gives many drivers pause.

A survey from Zebra found that 45 percent of drivers in the 18-24 age range, 31 percent of 25–34-year-olds and 40 percent of drivers between 35–44 are uncomfortable sharing driving stats. Sharing location data caused even more concern among the drivers, with 60 percent of 18-24 drivers, 48 percent of the 25-34 age group and 54 percent of drivers between 35-44 saying they are not comfortable sharing their location data. However, sharing data may not deter everyone, a quarter of all the survey respondents said they would opt-in to usage-based insurance if they were guaranteed to save money.

Drivers opting into usage-based insurance products constantly share personal data with multiple companies every time they get behind the wheel. Location, route, speed, performance and stops along the way are tracked. So, if sharing personal data makes you uncomfortable, consider if the benefits of cost savings outweigh the potential downside.

Although technology advancements have minimized these issues over the years, customers with usage-based insurance tracking mobile applications can often experience battery drain while the app is in use, similar to navigation or GPS-based applications. Usage-based insurance applications also tend to require newer operating systems to run properly while taking up quite a bit of storage. If you have an older phone, pay as you go mobile, or your little storage left, you may need to consider a phone upgrade before you participate. If you signup when you buy coverage, remember to install the device or download the app. If you don’t, you will lose the discount and see higher premiums as a result.

In addition to the type of device used to track driving behavior, usage-based insurance programs may vary by state, require an evaluation period, evaluate and reward different behaviors, offer discounts for signing up, and more. Not every usage-based product is the same, so be sure to shop around and find a policy that best meets your needs.

Next Posts

Why Insurers Should Maintain Control Over First Notice of Loss

View Now

The Value of Digital for the Policyholder

View Now

Reactive, Real-Time and Proactive Insights Drive Lovable Experiences

View Now
Back to Blog