Usage-based automobile insurance programs have seen a dramatic increase in uptake since 2016, according to a new report, the consumer data and analytics firm.
The US Auto Insurance Study is based on responses from 36,935 auto insurance customers and was conducted between January and April 2022. The survey aims to examine customer satisfaction in five key areas: billing process and policy information, claims, interaction, policy offerings, and price.
If you’re looking for a type of car insurance that better reflects your good driving skills, usage-based insurance (UBI) might be a good fit for you. UBI is an option offered by some auto insurance companies that tracks your driving and could result in cheaper car insurance — if your driving scores well.
Usage-based insurance programs generally measure speeding, acceleration and harsh braking, along with mileage and the time of day you drive. You get a driving score and often tips for improving your score. The better you drive, the better your auto insurance rates.
Inflation is one reason why drivers may be interested in usage-based insurance, as it can potentially reduce your car insurance bill.
How Does Usage-Based Insurance Work?
Usage-based insurance programs collect vehicle “telematics” data that comes from cellular, GPS or other technology. These programs track certain driving behaviors such as:
• Hard braking
• Hard cornering
• Miles driven
• Time of day
• Phone use while driving
More drivers are being offered a usage-based or telematics option for their car insurance policies. A TransUnion survey in February and March 2022 found that 40% of respondents were offered a telematics program, which was up from 32% in November 2021. The percent of those who were offered a telematics program and opted in also rose from 49% to 65%.
Usage-Based Insurance Technology
The study also finds that the greatest fall in customer satisfaction is due to price increases. On a 1,000-point scale, customer satisfaction with the price of their policies is 769, down 5 points since the 2021 survey. Whereas overall customer satisfaction is down just 1 point in the same time period.
The technology used to track your car’s telematics data depends on your car insurance company. Generally, driving data is collected in these ways:
• Through systems built into your car, such as BMW ConnectedDrive or OnStar
• Through a device plugged into your car’s on-board diagnostics (OBD-II) port, such as Nationwide SmartRide
• Through a smartphone app, such as Allstate Drivewise or Farmers Signal
• Through a device called a “tag” that is installed on your windshield or rear window and pairs with your smartphone via Bluetooth, such as Liberty Mutual Insurance RightTrack
The researchers found that insurers that are proactive about informing customers of price increases are best able to mitigate their negative effects.
Such programs now account for 16% of all automotive insurance. Customers participating in these programs report feeling more satisfied with their deal (59 points higher, on average, than among customers overall).
In the past year, 59% of customers experiencing a price increase were notified in advance (an increase of 15% since 2016) and overall satisfaction scores are 37 points higher among pre-notified customers. They found that a phone call was the most effective way to communicate a price increase.
Situation in UBI Auto Insurance
The current situation is a tough one for auto insurers, but it is not impossible in the current inflationary environment to build customer satisfaction and retention.
Many large auto insurance companies offer usage-based insurance, but it may not be available in every state.
Before you sign up, make sure you understand the program’s rules. You’ll want to know exactly what driving behaviors are being measured and how your driving might impact your car insurance rates.
There are some other quirks to be aware of. If your UBI program uses your phone to track driving behaviors, you need to know how the app works and if it tracks you as a passenger. For example, with Travelers IntelliDrive, you have 10 days to change driving information in the app if the app incorrectly records a trip in which you were a passenger, not the driver. You don’t want someone else’s bad driving scored against you.
You also want to know the consequences of opting out of the program. With some programs, such as Nationwide SmartRide, you’ll need to complete a four- to six-month evaluation period, but you’ll keep whatever discount you earn for as long as you insure your car with Nationwide. On the other hand, with programs such as MAPFRE’s DriveAdvisor, you’ll lose the UBI-related discount if you decide to opt out.
Some insurance companies will offer you a choice of how you want the data collected, depending on where you live.
For example, Liberty Mutual Insurance RightTrack offers you the choice among a tag, plug-in or mobile phone, while State Farm Drive Safe & Safe lets you choose between a smartphone app or your car’s OnStar system.
How your driving habits affect your car insurance premium will depend on your insurer, but in a typical UBI plan, your driving habits are tracked over a certain period of time. After you complete the initial review period, you may be offered a discount based on the telematics data.
Traditional auto insurance pricing factors are also still generally built into your rate, such as your driving record, credit, vehicle type and location.