In an effort to lower household bills, many people are looking into per mile car insurance plans. This new type of policy can offer lower car insurance quotes and premiums to individuals who drive less.
Many states have created regulations to allow for usage-based insurance (UBI) policies, which reward safer or less frequent drivers. Recently, new regulations made the policies available to drivers in California.
A typical UBI plan takes into account the number of miles driven, time of day driven and the driver’s acceleration and braking patterns. Researchers estimate that 1.1 million drivers will switch to this type of policy by 2017.
Advantages and disadvantages
For lower-income drivers and individuals that do not clock a lot of mileage there may be numerous advantages of pay per mile car insurance. If a person drives during safer times of the day and less often, they can be eligible for a discount. Drivers that qualify may be able to reduce their premiums by 10 to 15 percent.
Some insurance companies allow drivers to operate on the honor system, reporting their mileage once a year based on the car’s odometer reading. Other companies use electronic equipment that transmits a signal back to the insurer.
“Tracking one’s daily movements for a savings of 30 percent on the premium cannot find favor with customers, who regard privacy as extremely important,” said Frost & Sullivan senior research analyst, Niranjan Manohar. “Insurance companies face a potential restraint as the system’s basic principle is to keep track of its customers through a global positioning system.”
Individuals who are uncomfortable with their insurance company electronically monitoring them may find this option to be one of the disadvantages of pay per mile car insurance. However, California is allowing companies that offer this type of service to also help identify the location of the vehicle for providing emergency road, theft, map, or travel assistance services and may eventually be used by the government to access accident data.
Progressive’s Snapshot
Progressive Insurance is currently offering pilot UBI programs in 29 states through its Snapshot car insurance program. Drivers use an electronic device for 30 days and the company uses that driving data to determine if they are eligible for a discount. After six months the discount is recalculated. Progressive’s device does not use GPS monitoring equipment or take into account location and speed.