Is Usage-Based Car Insurance Growing in Popularity?

It has been several years since Progressive first introduced what is commonly referred to as "pay-as-you-drive" car insurance. Most major insurers now offer usage-based policies. According to Lynx Research Consulting, it appears these policies are finally increasing in popularity. In their 2013 LexisNexis Insurance Telematics Survey, they indicate that nearly 40% of the more than 2,000 drivers surveyed are at least familiar with these policies. Perhaps more telling is that nearly 50% now like the idea of only paying for the miles they drive.

Why Drivers Have Been Reluctant to Buy These Policies

The results of this survey are in stark contrast to other reports suggesting drivers remain skeptical about usage-based car insurance. Previous surveys indicate the most common reasons drivers have stayed away from these policies include:

1.       Distrust of the Unfamiliar - as with anything new, many drivers simply do not trust that insurers can accurately track driver activity in a way that is beneficial to drivers. Some have a "wait and see" attitude so they will not consider purchasing this type of policy until someone they know does and recommends it to them.

2.       Lack of Understanding - older drivers do not have enough technology-based knowledge to understand how the tracking and monitoring process works. They worry they may do something wrong that can skew tracking results to such an extent they end up paying more for a policy that was intended to save them money.

3.       Privacy Concerns - younger drivers who do understand the GPS technology have issues with insurers knowing the details of their driving behaviors. These drivers are perfectly fine with the idea of tracking the number of miles they drive but do not want insurers to know exactly where and when they travel.

4.       Unpredictability - although drivers like the idea of lower rates, they do not like having to pay different amounts each month based on miles they drive. Older drivers in particular like to know how much they need to spend on necessities, including insurance, each month. Drivers with limited incomes or those on strict budgets are less likely to consider this type of policy.

Insurers continue to address these areas when they advertise their usage-based products. Their goal is to get consumers from knowing about these policies to actually purchasing them.

What Has Changed in Recent Years

Several factors may have influenced the dramatic changes in consumer knowledge and use related to pay-as-you-drive policies. It is difficult to know exactly the weight of each of the following factors in setting the new trend toward these policies:

·         Tech-Savvy Drivers - more drivers that understand the technology behind usage-based policies are now driving. In fact, it is drivers between the ages of 21 and 34 that are the prime target audience for usage-based products.

·         Greater Discounts - 36% of the drivers surveyed indicate they are willing to switch to a usage-based policy to receive a 10% discount on premiums. Many of the major insurers offer discounts as high as 50% to drivers who purchase these policies.

Additional factors that could sway consumers to consider this type of policy include the insurers offering trial periods or allowing drivers to opt out without charging a penalty if they buy a traditional policy from the same insurer.

Getting Car Insurance Quotes to Compare Policies

Approximately 33% of those surveyed indicated they would be willing to switch insurers to buy a usage-based policy. To determine if a usage-based policy is right for you, get online car insurance quotes from major insurers for this type of policy as well as a traditional policy. Consider coverage options, pricing, and additional requirements to determine the full "cost" to you. Carefully compare car insurance quotes before buying a policy. Review cancellation fees so you know what to expect if you decide you do not like your policy and want to switch to a regular one.

With only 3% of those surveyed actually having a usage-based policy, the idea of these policies being popular seems relative. The increasing concern for how insurers use captured data continues to be the deciding factor for many drivers. Until drivers can be confident insurers will only store data temporarily and can keep it secure at all times, it is unlikely this type of policy will every truly become "popular" among drivers.