The trend of usage-based car insurance appears to gaining steam despite privacy concerns and potentially unforeseen costs.
More than one-in-three insured drivers would consider switching from a traditional vehicle insurance plan to one based on when, how much and how a vehicle is driven, according to a survey conducted by Lynx Research Consulting. Drivers could save anywhere from 5 to 30 percent on insurance premiums depending on driving habits, according to analysts.
The survey was released at a time when the average car insurance premium rose 35 percent, or $153, from 2012 to 2013, according to J.D. Power & Associates.
Though usage-based insurance — also known as pay-as-you-drive insurance — was first introduced a decade ago and many car insurance companies like Allstate, Progressive and State Farm already offer usage-based plans, the concept is not yet mainstream.
The National Association of Insurance Commissioners projects that 20 percent of all insurance plans will incorporate pay-as-you-drive features within the next five years. Information and data provider LexisNexis Risk Solutions disputes that notion.
“I think the industry has failed every projection that has been put out for the past seven years,” said Ash Hassib, senior vice president and general manager of auto insurance at LexisNexis. “It’s hard to believe you’re going to jump from less than 1 percent to 20 percent in five years.”
Usage-based insurance can provide more accurate rates because it takes into account current driver habits by reading a vehicle’s odometer and tracking its location. That’s different than typical auto insurance, which aggregates statistics and driving records based on past trends.
“They can better fit a driver to their risk profile,” Hassib said. “And that would help with the company’s profitability.”
The upfront costs of devices that transmit and track driver information are still high — upwards of $100 per customer — and they cost a few extra dollars each month to transmit the information.
About half of surveyed drivers say they would switch to a usage-based insurance plan if they received a discount of at least 10 percent, according to the Lynx study.
Many consumers are skeptical of pay-as-you-drive because of privacy concerns. Driving information is collected by a telematics system — either by using a system like OnStar, Ford Motor Co.’s Sync or a device that plugs into a vehicle’s diagnostic port. Information is stored and available for an insurance company to review to determine if a driver is eligible for discounts.
Depending on a specific insurance plan, drivers could be penalized for where and when they drive their cars — even, for instance, if they drive to an overnight work shift.