Pay-as-you-drive auto insurance picks up speed
January 18th, 2012
Nick DiUlio
Auto insurance companies continue to hop on the pay-as-you-drive highway, meaning more opportunities for drivers to get discounts.
In December 2011, The Hartford introduced a pay-as-you-drive auto insurance program called TrueLane, which is available only in Connecticut but should be rolled out to other states throughout 2012. Similar to Progressive’s Snapshot program, TrueLane uses an in-car device to gather data about driving behavior. That data then is sent to The Hartford for analysis and can result in a premium discount between 5 percent and 25 percent.
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| Experts predict pay-as-you-drive auto insurance programs will continue gaining popularity. |
“Customers are becoming more and more engaged in their shopping and buying behaviors around insurance products, and we see this as a compelling next step in our ability to provide them with more flexibility in terms of features and benefits,” says Randy Termeer, The Hartford’s assistant vice president of product management. “We think it’s really going to resonate with certain types of customers.”
Mike Barry, a spokesman for the Insurance Information Institute, says pay-as-you-drive programs like Snapshot and TrueLane will keep growing in popularity as more consumers realize how much money can be saved.
How does pay-as-you-drive insurance work?
The concept is rather simple. Pay-as-you-drive programs — also known as usage-based programs — are voluntary. Drivers can earn discounts based on how well, how far and how often they drive. This is accomplished through the use of telematics devices, which record data regarding driver behavior and then transmit that to insurers to help determine eligibility for a discount.
Aside from The Hartford and Progressive, insurers like Allstate, Liberty Mutual, GMAC and State Farm have pay-as-you-drive programs in place.
Progressive has offered its Snapshot program nationwide since April 2011. Drivers who sign up for Snapshot receive a small wireless device that plugs into the diagnostic port of a car and captures how, when and how much they drive.
Progressive spokeswoman Brittany Senary says driving less often, in less risky ways and at less risky times of day can result in premium savings of up to 30 percent. Drivers enrolled in the Snapshot program, which is available in 39 states and Washington, D.C., are saving an average of $ 150 a year on their auto insurance, she says.
It’s important to note that a driver’s auto insurance rates can’t go up with Snapshot or any other pay-as-you-drive program. Moreover, you can’t be penalized for going over the speed limit. And pay-as-you-drive devices don’t have GPS, so insurers don’t know where your car is.
Extra benefits of pay-as-you-drive insurance
Lamont Boyd, an insurance underwriting expert at credit score and insurance score provider FICO, says pay-as-you-drive programs not only benefit consumers who want to save money, but also parents who want to monitor the behind-the-wheel habits of teen drivers.
“Parents like myself want to know as much as we can about how our children are driving,” Boyd says. “This is an opportunity to get a better handle on their driving behaviors.”
Carroll Lachnit, features editor at automotive website Edmunds.com, says another benefit of pay-as-you-drive programs is that participants are judged on actual driving behavior rather than the habits of their demographic group.
“So, for example, you may be a young male driver who is very careful and very safe behind the wheel,” Lachnit says. With the pay-as-you-drive concept, “you could possibly get out from under a demographic that is usually charged a higher rate.”
Pay-as-you-drive insurance draws criticism
Despite the rise of pay-as-you-drive programs, not everyone is enthusiastic about them.
Insurance expert Frank Cacchione, CEO of New Jersey-based TNC Management Group, says consumer savings are being overstated. It’s safe to assume, he says, that the current wave of consumers who are installing these monitoring devices in their cars are safe drivers, limit their commutes to work, have been accident-free for years, and generally are in the class of drivers who already are receiving great rates.
“So providing a further rate reduction for these consumers is likely redundant and not a sustainable incentive to switch,” Cacchione says.
Furthermore, Cacchione says consumer distaste for what may be perceived as invasion of privacy will curb the pervasiveness of pay-as-you-go programs moving forward. That’s especially true if it becomes possible for driving data collected by insurers to be used in court cases, he says.
“There’s a lot of work ahead to establish how this data can be used for insurance underwriting, claims litigation and other purposes,” Cacchione says. “Usage-based insurance will definitely grow in use and consumer acceptance, but there are a lot of barriers in place for it to become the pricing method that fully replaces some of the factors and data used today.”
What’s down the road for pay-as-you-drive insurance?
Boyd says it’s unlikely that pay-as-you-drive programs ever will replace the way auto insurance policies are written now, and that programs like Snapshot and TrueLane ever will become mandatory.
“I don’t think anyone in the industry wants to give up what they are currently using, which has been proven to be … reliable in assigning the best price for insurance,” says Boyd, the FICO underwriter. “What many insurance companies are thinking is that this is just one more piece of information about drivers applying for insurance that we did not have before. It’s not a replacement. It’s an added value.”
Tamara E. Holmes
Think you can maintain your perfect driving record as long as you limit your speeding tickets to other states? Not so fast. Most states not only will share information about traffic violations with your home state, but your home state may even deliver its own punishment.
“You can run but you cannot hide,” says Kevin Lewis, director of driver programs for the American Association of Motor Vehicle Administrators.
And you probably can’t hide that out-of-state ticket from your auto insurance company, either.
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| Generally, you can’t hide from an out-of-state traffic ticket — especially if it’s a serious traffic violation. |
Recognizing that reckless driving can be harmful no matter where it takes place, most states have joined the Driver License Compact. Under this agreement, 45 states and the District of Columbia send information about out-of-state traffic violators to a driver’s home state. Georgia, Massachusetts, Tennessee, Michigan and Wisconsin aren’t members of the compact. However, some of those non-members often exchange information as if they were part of the compact.
Meanwhile, the Nonresident Violator Compact is designed to ensure that drivers don’t return home and leave behind unpaid traffic tickets in other states. Under this arrangement, if an out-of-town driver doesn’t comply with the punishment for a traffic ticket, his or her home state would be alerted and the home state would begin license suspension proceedings. Forty-four states and the District of Columbia are members; only Alaska, California, Montana, Oregon, Michigan and Wisconsin are not.
In the past, neighboring states often would come up with their own agreements for sharing information about out-of-state traffic citations. For example, Maryland, Virginia and the District of Columbia devised an agreement back in the 1960s, as did New York, New Jersey and other states in the region. However, widespread acceptance of the two compacts has wiped out the need for regional agreements.
Serious infractions harder to conceal
For the most part, states don’t care much about minor traffic violations, such as parking or standing infractions. So an out-of-state parking ticket or a citation issued for a broken taillight is not likely to be sent to your home state.
However, the more serious the infraction, the more likely it will follow you wherever you go. Not only must you worry about the two compacts, but the National Driver Register — a database run by the National Highway Traffic Safety Administration — keeps track of drivers who’ve had their driving privileges suspended, revoked, cancelled or denied. The database includes drivers who are guilty of serious traffic violations such as DWI.
Whenever a driver applies for a license or seeks to renew it, state motor vehicle departments check the database for infractions, which then can be attached to your driving record and can be used to deny driving privileges, according to the National Highway Traffic Safety Administration.
State rules differ
What states do with information about residents’ out-of-state traffic violations varies from place to place. Some states add only certain types of violations to a resident’s driving record. For example, a state that records only those speeding violations for driving 20 miles per hour over the limit might not flag an out-of-state citation for driving 10 mph over the limit.
States also vary in how out-of-state infractions affect a driver’s record. For example, New Jersey assesses two points on residents’ driving records for all out-of-state moving violations. On the other hand, New York does not tack points onto a driver’s record for out-of-state traffic violations unless those violations occurred in the Canadian provinces of Ontario and Quebec.
Some states may even withdraw your driving privileges for major violations in other states. For example, Wisconsin will suspend privileges for such out-of-state infractions as DWI, attempting to elude an officer and hit-and-run.
Out-of-state tickets and auto insurance
Of course, one of the biggest questions that drivers want answered is: Will an out-of-state ticket cause insurance premiums to rise? The answer depends on several factors:
• Whether your state adds that type of infraction to your driving record.
• The insurance laws in your state. For example, according to New York traffic attorneys Scott Feifer and Matthew Greenberg, citations for speeding up to 15 miles per hour over the limit shouldn’t harm your insurance rates.
• Your insurer’s practices when it comes to checking driving records. The more often your insurer checks driving records, the more likely you’ll soon face an increase. “Those serious violations could definitely have an effect on someone’s insurance rate if the insurance company pulls that driver’s record,” Lewis says.
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