You want to cut your car insurance costs? There’s a new pay-as-you-drive discount on the market, and it could save you as much as 40 percent on your car insurance.
In May 2012, car insurer State Farm unveiled a partnership with car manufacturer Ford that offers potentially significant discounts on insurance premiums to drivers of vehicles equipped with Sync, a factory-installed, in-car communications and entertainment system.
Expansion of Drive Safe and Save
The partnership expands State Farm’s Drive Safe and Save program, a mileage-based discount option for consumers that calculates insurance rates based on the number of miles driven in a six-month period. Until now, Drive Safe and Save had been available almost exclusively to drivers of OnStar-equipped cars, with odometer readings being sent to State Farm. But now drivers who have vehicles equipped with Ford’s Sync system can get in on the action as well.
Sync’s Vehicle Health Report already keeps track of the number of miles driven, but now that technology can be used to report verified odometer readings directly to State Farm to help come up with potential discounts. The program kicked off in Utah in May 2012 and will be rolled out nationwide in 2012 and 2013.
“Our usage-based insurance programs are important to our future, and we feel like this is just one more way to benefit our customers,” State Farm spokeswoman Holly Anderson says. “Not only does it offer customers a possible discount, but it also helps us make sure we are pricing their policies as accurately as possible based on how many miles they’re driving.”
Potential discounts vary
There’s no cost to Sync drivers who want to join the program. Anderson says a 5 percent premium discount is applied right way just for signing up. From there, the number of miles driven by a customer will determine the cost savings.
According to Anderson, the amount of premium savings will be determined every six months based on the number of miles driven during that span. Those driving the national average of 1,000 miles a month typically will save about 10 percent, and drivers who log significantly fewer miles could save up to 40 percent.
Lamont Boyd, insurance underwriting expert at credit-based insurance scoring provider FICO, says this new pay-as-you-drive option is good for State Farm and its customers.
“I think any time an insurance company can verify the miles being driven by its customers is to the advantage of the insurance company and to its consumers, because both parties are getting a more accurate picture of the policyholder’s driving habits,” Boyd says. “My guess is that State Farm is just the first in a long line of insurance companies that will develop this kind of product.”
Other pay-as-you-drive programs
Indeed, similar products already are available in the ever-expanding market for pay-as-you-drive car insurance (sometimes called usage-based insurance, or UBI insurance).
For instance, Progressive has offered its Snapshot program nationwide since April 2011. Drivers who sign up for Snapshot receive a small wireless device that plugs into the diagnostic port of a car and captures how, when and how much they drive, resulting in discounts of up to 30 percent.
In December 2011, The Hartford introduced TrueLane, which uses an in-car device to gather data about driving behavior. That data then are sent to The Hartford for analysis and could result in a premium discount of 5 percent to 25 percent.
Aside from The Hartford and Progressive, insurers like Allstate, Liberty Mutual and GMAC offer pay-as-you-drive programs.
“Auto insurance is a very competitive marketplace, and insurers across the country are looking into UBI programs quite extensively these days,” says Jim Whittle, chief claims counsel for the American Insurance Association, a trade group. “They view this as a powerful tool in gathering real-time data related to driving activities relevant to underwriting and pricing individual policies.”
'In their infancy'
Despite their growing popularity, UBI programs probably won’t significantly alter traditional underwriting practices for determining car insurance rates, says Alex Hageli, director of personal lines policies at the Property Casualty Insurers Association of America, a trade group.
“The trend will definitely continue, but these programs are still in their infancy,” Hageli says. “They’ll certainly enhance the underwriting process, but it’s still only going to be just another component in the large basket of factors that determine insurance premiums.”
And then there are the privacy concerns. Carroll Lachnit, features editor for automotive website Edmunds.com, says that despite the potential savings, some consumers always will be wary of an insurance company monitoring their driving habits.
“For some people, this is going to feel too much like the camel poking its nose under the tent,” Lachnit says. “And even though insurance companies guarantee that UBI programs don’t track your location, some consumers will remain inherently suspicious, and there’s no talking them out of it.”
But Mike Barry, a spokesman for the nonprofit Insurance Information Institute, says those privacy concerns are greatly outweighed by the potential cost savings.
“As long as it remains a voluntary option for the consumer," Barry says, "I think that the criticism will be somewhat muted and the trend will continue to grow.”