Pay-as-you-go insurance has many different names. Some of the most common names are usage-based, pay-as-you-drive, mile-based, and pay-how-you-drive insurance. Essentially, they’re all talking about the same new variant of car insurance. This is simply coverage with costs tied directly to how much you drive, and with premiums based on the total number of miles traversed each month. Safe-driving commuters and college students who either don’t drive a whole lot or who can’t afford to pay high rates may be the perfect candidates for this growing trend in vehicle insurance.
Pay-as-you-go insurance may also be a good fit for those willing to be in frequent contact with their car insurance providers. It can prove more cost effective, though perhaps more time consuming. This new type of insurance differs from traditional insurance by attempting to differentiate ‘safe’ from ‘reckless’ drivers. In doing so, carriers should theoretically be able to offer safer drivers lower premiums and no-claims bonuses. However, considering the actuarial challenges of basing rates on historical patterns, it may take some time to perceive a driver’s safer or less reckless driving pattern.
There are other ways insurance providers can base premiums on current driving patterns. Pay-as-you-drive can base coverage on the odometer reading of the vehicle, the number of minutes a vehicle is engaged, or through data collected such as speed and time of day. These last two options are provided through a Telematic, a GPS device that simply takes data from the car and transmits it back to the carrier.
Potential benefits may include some environmental aspects as well. The idea of pay-as-you-go insurance has been lauded by many environmentalist groups that promote incentives to drive fewer miles and yield less auto emissions. More benefits include savings for those users deemed safe, a different choice of car insurance for consumers, and the Telematic device can be used can also provide satellite navigation. Another potential benefit is on the carrier’s side. Currently, commercial carriers such as Geico and Allstate don’t offer this new insurance. The technology could help better align insurance with actual risk.
Prepaying for insurance
Some potential drawbacks to opting for pay-as-you-go insurance include the claim that it’s a further, data-based infringement on privacy. The other main issue is that the insured would be prepaying for insurance, charged on present or future risk instead of the traditional past behavior.
Though accepting this new form of car insurance may help segment the market and save safe drivers some money, it seems there still are some grey areas in the technology and its applications that must be sorted out before it’s widely used.