Car insurance rates have always been based on risk, and risk has usually been measured by the number of miles driven. So drivers often underreport the miles they travel to keep their rates low -- at the expense of other drivers.
But a form of insurance that requires electronic verification of miles driven, in return for a discount, is gaining popularity. These so-called pay-as-you-drive policies -- miles are often tracked through a GPS system in the car -- are now offered in more than half of the states and are spreading, albeit slowly, despite privacy concerns.
Progressive Insurance, which began selling pay-as-you-drive policies in 1998 and offers them in more than 30 states (though not yet in Washington), says acceptance was strong among those eligible. "Approximately one in four customers are choosing this," says Richard Hutchinson, Progressive's general manager for usage-based insurance.
Several factors are driving the growth. One is that the cost of GPS and data devices has plunged, making tracking more economical. For less than $100, companies can buy trackers that simply plug into the diagnostic port required on cars made after 1996.
More on Snapshot
- Progressive's Snapshot program can save drivers up to 30 percent off insurance rates. After installing the Snapshot device in a car and driving for 30 days, customers will find out whether they're eligible for a discount based on their driving habits. After six months, eligible drivers send back the device for a final measurement.
In addition, people are more comfortable being monitored, having grown accustomed to sharing information on websites such as Facebook and Twitter, and through phone applications such as Foursquare and Google Latitude that show where they are.
Insurers have also decided to collect less information than they once anticipated. GMAC Insurance, which offers pay-as-you-drive coverage in 35 states including Washington, uses the OnStar system in General Motors cars only to confirm miles driven.
"Mileage is pretty innocuous," says Tim Hogan, GMAC's vice president for national accounts. "When you talk about time of day and speed, people become more concerned."
Initially, the idea was that the insurers would collect data on what streets a driver takes, at what time of day and how aggressively he or she drives. Insurers would then determine risk based on behavior as well as mileage.
Progressive was at the forefront of this movement in the U.S. but has reduced the scope of the data it uses to rate drivers -- for instance, by excluding location and speed. And it has changed the name of its plan to Snapshot Discount because it sets a discount after 30 days of data collection. After a driver is monitored for six months, the device can be removed from the vehicle.
Some insurers expect drivers to let themselves be closely tracked -- eventually. "There are lingering concerns about privacy," says Dr. Robert Hartwig, president of the Insurance Information Institute, a trade group. "But that barrier is breaking down."
The Facebook generation, he says, sees it as "normal to have interactivity with companies that they buy products from."