What Is Usage Based Car Insurance?

Jim Tice
Written on June 25, 2018

For many years, car insurance rates have been determined by familiar factors such as the driver’s age, sex, driving record, type of vehicle, how the vehicle is used, and credit ratings. Modern technology is making possible the use of other factors which could revolutionize car insurance. This is called Usage Based Insurance (UBI).

Some companies are now testing UBI. This allows the insurance companies to base their premium on:

  • How the vehicle is used
  • Annual mileage
  • Where the car is driven
  • How often the car is driven
  • If speed limits were obeyed
  • How hard the driver brakes
  • How aggressively corners are navigated

Insurers will be able to capture the data to allow UBI from several sources. First, on newer models, “telematics” equipment is being installed. This records all the usage information, so it can be retrieved later. The data telematics captures can be very important when reconstructing what happened in an accident. However, it can also be shared with an insurance company.

If you don’t have a newer vehicle, there are other options. These telematic “black boxes” can also be installed on vehicles that don’t have it from the factory. In addition, smart phones can be linked to a vehicle’s system to transmit a variety of information to and from the car. There is even a smart phone app that lets you score your driving, so you can “try before you buy” UBI.

Pros

There are lots of pros and cons of UBI. Fleet managers will be able to monitor their drivers and their driving habits while they are in the field. This will save money and increase safety. For some people, who drive little and very conservatively, it would reduce their car insurance premiums.

Cons

On the other hand, there is certainly a privacy concern. You may not want data concerning where you are and when you are there in your insurance company’s hands. If you enjoy the process of driving, the fun of using your car’s power to rapidly (and safely) get up to speed entering an interstate on-ramp, or enjoy testing your driving skills by cornering hard on a twisty country road just because you can, do you want your insurance rates to go up?

So far, UBI is voluntary and not wide spread. But it’s growing and will be offered by more and more insurance companies as the technology becomes more common. It will be offered as a means of saving money. Depending on your driving habits, it may save money, or it may not. However, it will definitely eliminate privacy.  The decision is yours.