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Usage Based Auto Insurance Gaining Traction, Lowering Premiums

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Reviewed byJoel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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Yes, we’re referring to popular new programs such as Progressive Snapshot.

Usage based insurance (UBI) is quickly being adopted by large auto insurance companies as a means to select drivers they prefer to insure, while providing these customers with lower premiums, according to a recent Weekly Credit Outlook from Moody’s .

How Usage Based Insurance Works

Insurers are using devices, known as telematics, which are installed in a vehicle to track various aspects of operation.

The telematics report information such as mileage, time of day the car is in-use and how often the car’s brakes are applied vigorously.

This information helps insurers determine which of us presents the least likely statistical chance of having an accident and filing an insurance claim.

And the lower your chance of filing a claim, the lower your overall insurance premium.

You’re not the only one saving money here. Your insurance company also saves big bucks by selecting drivers who don’t end up costing them money. It’s a win-win situation.

Keep in mind that this is not Mileage Based Insurance. MBI is a program where you guess how many miles you will drive in a given policy period.

This type of insurance can be dangerous for an insured that guesses incorrectly and is forced to pay HUGE penalties for “going over.”

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Which Insurers Offer UBI?

You may notice the insurers offering this product have one thing in common. Deep pockets. The cost to launch a product of this nature is keeping smaller insurers out of the market so far.

But they may be forced to get on board or potentially suffer financial consequences that outweigh the cost to implement UBI.

1. Progressive Insurance
2. Liberty Mutual
3. Nationwide
4. Travelers
5. The Hartford (announced they will offer UBI in the near future)
7. Allstate
8. State Farm

Most of these insurers also make the list of companies with the biggest advertising budgets. Noticeably missing is GEICO.

TTAI wouldn’t be surprised if there were a Gecko-shaped telematics device in the works as this post is being written.

What’s the Future of UBI?

Over time, you should expect to see more and more car insurers adopting this technology. Those who don’t run the risk of being overlooked by consumers.

The companies that can’t (or don’t want) to go this route will be forced to insure “less attractive” drivers, as those that fall into this category will likely opt not to have their driving habits tracked – knowing their insurance premiums may actually increase as a result of being monitored.

After all, the “riskier” driver will certainly opt for an insurer who doesn’t track their vehicle usage and driving habits.

Is UBI Always the Cheapest Coverage?

While usage based insurance is a great idea for those who exactly fit the risk profile of the insurers who offer it, it is not always going to be the best deal around.

It is recommended you aggressively shop your insurance premium with an independent insurance agent who can compare several companies at one time.

They’ll help you find a company that doesn’t inflate their premiums in order to spend hundreds of millions of dollars in advertising each year.

A few of the insurers on the UBI list continue to have some of the highest car insurance rates out there – regardless of your vehicle usage or driving history.

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