The Pros and Cons of Usage-Based Auto Insurance

According to the New York Times, many auto insurance companies are already offering or are testing the idea of offering usage-based auto insurance. If you let the insurance company track your driving, and if you’re a good driver, you can receive hundreds of dollars in discounts each year. Would you do it? Here are some things—good and bad—to consider with the proposition.

Pros:

Let’s say you’re a 23 year old man. That’s not necessarily the best age and gender combination when it comes to car insurance, right? Let’s say you’re a 23 year old man who is a very conscientious driver. Why should you be penalized just for your age and gender? The usage-based proposal would actually work in your benefit, as you could be awarded for how careful you are.

Drivers participating in a pilot program received an average of 10 to 15 percent off their premium for good driving practices.

Further, participants in the pilot program for one insurance company received feedback via report cards that considered such things as how the driver accelerated and decelerated, how safely they performed turns, the time of day they drove and the speed at which they were driving. It occurs that receiving such feedback would be really helpful. How often do you get honest feedback on your driving skills, along with the chance (and motivation) to address problem areas? Wouldn’t it make the roads safer if everyone was concerned about getting a good grade in driving and a discount as a reward?

Cons:

The tracking devices generate a lot of data. While there are no plans for insurance companies to share the information with others, some experts are concerned that the information could be placed into a consumer database at some point in time, creating driver scores similar to credit scores.

Not every insurance company has a policy for usage-based auto insurance, and not every state participates, and not every vehicle is compatible with the tracking device, which could result in the discounts not being available for all drivers.

The elephant in the room, though, is privacy concerns. The devices at this point don’t actually track where a person is driving, only how. Will it always be that way though? And what about the accuracy of the information? If, like credit scores, there is a chance of error, will there also be a chance to correct it?

Usage-based auto insurance is an interesting, two-sided issue. What are your thoughts about it?

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