Pay as you drive insurance trading privacy for money

A few car insurance companies are trying a new program that trades privacy for discounts. Pay-as-you-drive insurance, otherwise known as usage-based insurance, can save customers up to 30 percent. These savings, however, require minute-by-minute tracking of the customer’s driving practices.

The basics of pay as you drive

Pay-as-you-drive insurance is being tested or offered by some of the largest vehicle insurance companies in the United States. Progressive, Liberty Mutual and GMAC all offer the product. Insurance companies in Australia, South Africa, Canada and the United Kingdom also offer it. The insurance companies plug monitoring devices into vehicle computers and record a variety of information, including speed, braking and other driving habits and patterns. Advanced tracking information may include time-of-day driving information and GPS tracking.

The benefit of pay as you drive

Pay as you drive insurance can be, in many ways, beneficial. When being monitored, many drivers are much more careful. By tracking driving habits, insurance companies also have the ability to charge based on actual risk rather than perceived risk. This actual-risk cost of insurance reduces the cost for safe drivers, which causes drivers to be safer in order to save money, making roads safer for everyone.

The risks of pay as you drive

Just because pay as you drive insurance reduces insurance bills does not mean it comes without risks and costs. Privacy advocates are concerned that usage-based insurance effectively punishes individuals that do not wish to be tracked on a daily basis. There is also no rule that prevents insurance companies from charging based on factors that may or may not actually have an effect on safety. Some insurers, for example, charge more if a driver is recorded as driving late at night or for very long periods of time. These factors could indicate a riskier driver — or they could indicate a safe driver that happens to be working a swing shift.