Pay-as-you-drive insurance has become an enticing option for drivers, but does reduced mileage always add up to big savings?
It depends where you live and who's your insurer.
Still fairly new in most states, this performance-based insurance tracks driving behavior through small sensors installed in a car or by an existing on-board communications system. That sensor feeds certain information back to the insurance company. For providers including State Farm and MetroMile, that means strictly counting the miles you're driving. For Progressive's Snapshot program, however, a small wireless device under the dashboard of a car records not just how many miles are driven each day, but how often a vehicle is driven between midnight and 4 a.m. and how often a drivers slams on the brakes. Other insurers including Allstate, The Hartford, Liberty Mutual, GMAC and Travelers have similar programs.
Even with those more in-depth programs, however, mileage plays a huge role in determining premiums.
"It's a really big part of what goes into your rate, because the insurance company figures that the more miles you drive, the more likely you are to get into an accident," says Laura Adams, senior analyst for InsuranceQuotes.com. "More road time just means more potential risk, so if you're driving less, they'll reward you for that."
Even without enrolling in those programs specifically, reducing mileage can have a significant effect on a driver's insurance payments. An InsuranceQuotes.com survey this year found that a U.S. driver who drives 5,000 miles a year pays 8.4 percent less on average than a fellow driver who logs 15,000 a year -- and that's just slightly more than the 13,476 the average American drives annually, according to the Department of Transportation.
Again, this varies widely by state. For example, someone in California who drops their mileage from 15,000 miles a year to just 5,000 knocks 25 percent off of their annual premium on average. That same change would earn you an 11 percent discount in Alaska or Washington, D.C., and would still cut 10 percent off premiums for Massachusetts, Alabama, Maryland and Hawaii drivers. Make the same cut in North Carolina, however, and you'd see a zero percent change in rates thanks to a cap on how much insurers in that state can raise rates based on miles driven.
Also, it doesn't provide a full picture of discounts available to drivers for allowing insurers to monitor other factors including your average speed, how hard you hit the brakes and what time of day you drive. Progressive's Snapshot program, for example, has collected enough data to figure out that not only were school driving manuals wrong about keeping four seconds between you and the driver in front of you, but that it takes even the most aggressive stoppers 12 seconds to come to a complete halt when traveling 60 miles per hour. The average driver takes 24 seconds -- or roughly 420 yards -- to come to a stop at that speed.
"After analyzing Snapshot driving data, we've found hard braking to be one of the most highly predictive variables for predicting future crashes," says Dave Pratt, general manager of use-based insurance for Progressive. "We know that one of the main contributors to hard braking is tailgating, so we're using our data to help drivers be as alert and aware as possible on the road. We've gathered billions of miles of driving data and are only just beginning to scratch the surface in terms of the types of predictive behavior our Snapshot analytics can reveal."
Naturally, more privacy-minded drivers are a bit freaked out by the monitoring aspect. In fact, a majority of U.S. drivers (51 percent) told InsuranceQuotes that they would never joining a pay-as-you-drive insurance program, according to a report from InsuranceQuotes.com. That's actually up from the 37 percent who were dead-set against pay-as-you-drive insurance last year.
But the National Association of Insurance Commissioners predicts that 20 percent of all U.S. auto insurance companies will incorporate some form of pay-as-you-drive program within the next five years. Insurers don't even have to install monitoring devices, as existing technology such as General Motors' OnStar already records driver behavior data.
Some of those fears are largely unfounded. More than half of respondents said they think insurers can monitor whether they've been drinking and driving (they can't), while 35 percent say they think insurers can jack up rates for driving in "neighborhoods with a lot of crime" (they don't).
But more than a quarter of respondents (26 percent) dismissed pay-as you-drive insurance solely because "I don't understand how it works." That's been less of a problem with younger drivers, as 47 percent of drivers between the ages of 18 and 29 are aware of pay-as-you-drive programs compared with 22 percent of drivers 65 or older. As a result, only 15 percent of Millennials share their elders' privacy concerns and 43 percent of drivers between the ages of 18 and 29 said they would consider enrolling. That far outpaces the 36 percent between the ages of 50 and 64 who'd do the same and the 28 percent of respondents over 65 who'd give it a shot.
While there may not be a deep enough discount in every state to warrant a switch just yet, pay-as-you-drive is at least worth a test run in states where it knock down premiums by a few percentage points.
"If you think you're a good driver and you're not opposed to sharing some of this data about how you drive with an insurance company, I say give it a shot," Adams says. "If it doesn't save you money, you can always switch back to the regular insurance and there's no downside."