What is Usage-Based Car Insurance?

What is Usage-Based Car Insurance?

Insurance is one of the costliest parts of owning a vehicle and most drivers would do anything in their power to lower their rates. But would you go so far as to hand over your personal driving data?

A fairly new initiative, some insurance customers can now sign up to plug in a logging device to their car, which can track a number of variables to see what kind of driver you are, and possibly lower your insurance rates. Called “pay as you drive” or “pay how you drive” these new systems bring up a lot of questions.


progressivecloseupjpg-d95e58af51ea33afThroughout the US, Progressive Insurance offers Snapshot, a system that plugs into your car’s OBDII port and logs information about how you drive. Canadians also have this tech offered by Desjardins, called Ajusto. Even some insurance companies in Europe offer this kind of logging technology. The system determines whether or not you’re a safe driver and you can net a savings of up to 25 percent. But there are concerns that the insurance company might be horrified by your driving habits, increasing your premiums instead.

“So far they say that they will not increase your rates as a result of the information gathered from this technology,” explains Anne Marie Thomas from InsuranceHotline.com. “It’s all data and statistics, and that’s how insurance rates are set, on statistics. If statistically you’re in the low-risk range, then you should be paying less than those who are in the moderate or high-risk accident range.”

It doesn’t sound like a bad deal, but it’s important to know what information the insurance companies are looking at.


One of the main things that insurance companies want to know is how much you drive your car. While you may send rough numbers of how much you intend to drive your car in a year, it can vary from year to year. Insurance companies want to know exactly how much road is being covered by your car, and they will adjust your rates accordingly. For example, if you drive under 10,000 miles a year, you end up saving money.

“The less you drive, the less likely you are to be in an auto accident, and that should be reflected in your rates,” says Thomas.

The insurance company’s mindset is more miles means added risk, so if you drive less you’ll pay less for insurance.


Insurance companies have reassured us that they don’t care about your actual driving speed, just your rate of acceleration or deceleration. If you accelerate 8 mph faster in one second, or decelerate 9 mph slower in one second, you’re considered to be slamming on the gas, or brake pedals, and driving erratically.

“Insurance companies consider this type of driving to increase your chances of getting into a rear-end accident,” Thomas explains. “If you’re following too close and adjusting your speed too much and too drastically, then you won’t get those discounts.”

The theory is that smooth driving habits are safer (and more fuel efficient too) and that if you’re not constantly hammering on the gas and brake pedals, then you’re a safer driver.


Progressive-image2The most comprehensive information that is collected involves when you drive your car. Depending on when you drive, you may encounter a lot of other vehicles on the road, and increase your chances of getting into an accident and making a claim. Categorized as high, moderate or low risk driving times, insurance companies will deem the riskiest times during rush hours due to the number of other motorists on the road with you, and past midnight when you might be drowsy and less alert.

The lowest risk times are non-rush hour times, like  5-7 am, 9am-4pm and 6-10pm. Weekend driving is also considered low risk. The more you drive during these low risk hours, the more you’ll save.


progressive-snapshot-devicejpg-1897230c15a78be5For those worried about privacy, insurance companies allow you to see all the data that you’re providing them. Users can access the information on the web by logging in, and can see how their driving habits affect their insurance costs. This might not sound like much, but it can serve as help for parents who want to know if their inexperienced teenage-drivers are behaving responsibly behind the wheel.

“When your kids are learning to drive, you don’t really have the sense of how they do on their own,” Thomas says. “Being able to see that data is helpful, so you can gauge what they’re like behind the wheel when you’re not there.”

It’s not too intrusive to know where and how fast the car is going in the hands of your teenager, but it’s handy enough for parents to help teach the importance of accelerating and decelerating smoothly in addition to driving responsibly. It also helps to quantify the impact of driving poorly.

Families with young drivers have to pay extra to insure the newer drivers, but signing up for this kind of insurance logging can help bring down those costs, while teaching an important lesson to the inexperience drivers in the household. Equally valuable is the extra peace of mind to a parent.


4968253960_ce4eeaa487_bIt’s clear that the number one concern to customers is privacy. Progressive could change its policies in the future to log more data, or it could use your current data to increase your rates, rather than decrease them. Such bold moves would likely cause more customers to leave the insurance company or opt out of the program. Progressive has clearly spent time researching the reaction of the customer about what they are logging.

“Over the last ten years, we’ve tested several variables, including location and acceleration data. ” says Jeff Sibel from Progressive. “Our research shows that our current version, without location or acceleration, is appealing to consumers and provides us with an accurate picture of our customers’ driving habits.”

Early patents of the device list some GPS or cellular functionality to track your information, but it’s clear that customers weren’t comfortable with that data.

Other insurance companies have toyed with the usage based insurance idea. Another Canadian provider, Aviva, had a pilot program which was ultimately ended.

“The program was voluntary and we did not experience any issue with customer privacy concerns,” explains Aviva spokesperson Glenn Cooper, but he didn’t hint as to why the company didn’t follow through and offer the same program to all customers. “As it was only a pilot program, there was not a specific reason why we discontinued.”



If you’re comfortable with trading discrete data about your driving habits for discounts on insurance, then these data-logging solutions will be a great avenue for you.

However, it’s important to know that by shopping around you can likely find lower insurance costs elsewhere, without having to resort to giving up potentially personal information about the way you drive.

“Sure you can get this technology to help you save money, but another way to save without any modifications to your vehicle is to just shop your rates,” Thomas says. “It’s entirely possible to find those savings at another company without resorting to the logging technology.”

So if you’re not comfortable with big brother watching, then you don’t have to sign up for it, and can save regardless just by shopping around.

  • FRS_Lover

    I’m a really slow cautious driver so I wouldn’t mind this. Although, all it’ll take is for my boyfriend to take one joy ride in my car for my rates to go up.

  • MistyGreen

    I did it, and it saved 10% on my car insurance. I don’t have a lead foot, but I’m no grandma either. Fortunately, I think Progressive (as alluded to) doesn’t take fast acceleration into consideration. Obviously sometimes you have to slam on the brakes, but simply driving in a more fuel efficient manner results in you paying less to insurance. Win win! I don’t drive a ton (maybe 14000 miles/year) but we did take a long road trip during the few months we had the Snapshot, and still got our rates cut by like a hundred per year or so.

  • MistyGreen

    ha yea, and they get mad if you take it out of the car. I think they have a way of knowing.

  • Mike

    No way, no how. They may not raise rates now but they will, or cancel you. Wait till you’re in an accident and the police want to look at it or the other drivers lawyers. And especially progressive with their owner or CEO. People complain about big brother and you would actually do this to yourself. Not worth 10, 20 or even 50%.

  • I resent the “rate suckers” portion of the Snapshot campaign, because it insinuates that those of us (even those of us who use Progressive) who don’t want our driving habits tracked are somehow infringing upon some imagined rights accorded to Snapshot users. What’s really happening is that Snapshot users are simply trading intel to Progressive for a very nebulous hope of lowered rates, with no transparency as to what discounts will be offered for exactly what mileage, speed, travel areas, etc.

    No sale.

  • ColumWood

    Excellent point! There should be a clear way of knowing that if you drive a certain way, they will discount you a certain percent. It wouldn’t be the first time an insurance company screwed someone over.

  • MistyGreen

    This “very nebulous hope” turned into hundreds of dollars for me. The bottom line is, the actuaries over there give everyone a percentage chance of driving in a certain risky way, like driving at peak hours, driving a lot, braking heavily, etc, and combines that somehow with the expense of such behaviors. If you can prove the chance of you exhibiting those behaviors is less than average, then your cost goes down. There’s no argument of rights, just some people who think Progressive is going to sell this data to Russia or something. Honestly, why are people afraid of this? What are they going to do?

  • The idea that Progressive and other insurers would sell the data to Russia is a specious argument at best. I want to know what data are being collected and with whom it will be shared. Since the data are about me, I assert that right. No exceptions. And…”If you can prove the chance of you exhibiting these behaviors is less than average…”? If I don’t get the benefit of the doubt, if the company that wants to do business with me doesn’t trust me without sticking an electronic leash on my car whose data I am not allowed to see, then I take my business elsewhere. I don’t like being treated as though I’ve already done wrong when I haven’t. Period.

  • Alfie

    10 percent isn’t very much. Like the article says, you probably could have gotten that much if you just switched insurance companies.

  • MistyGreen

    Wow, you REALLY don’t understand the point of statistics, do you? If they gave everyone the ‘benefit of the doubt’, they’d no longer be in business. That’s a hilarious notion you have there about the way insurance companies work.

    Also, do you know what data is (/are, since you seem obnoxious about that) being collected about you from your cell phone company? Did you dig until you were confident that you knew everything that was being collected by them? What about your internet provider? You don’t think they’re logging data usage (at the very least, the amount of it) for business development purposes? Have you found out about that? Maybe you have a store card for your local grocery store. When they connect your purchases to that card, do you know who it’s given to, or for what it is used? And do you have a credit card? Need I say more?