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Pay As You Drive

With a competitive insurance market automobile insurance carriers are looking to write more and more business, but of course they also want it to be profitable. One such way to remain competitive while still writing the best drivers is a GPS like device for drivers, or a monitoring device for driving habits. This type of insurance is referred to as usage based insurance, pay as you drive insurance, or pay how you drive insurance.

Per Forbes September 30, 2012 edition one such carrier, Progressive, uses a driver’s habits based driving monitoring system, called Snapshot, there is no GPS involved. The device tracks how often a driver brakes hard, how many miles drive daily, and how frequently the driver drives between midnight and four AM. There is no tracking of speeding or the whereabouts of the driver, a concern for privacy advocates. Per the Progressive website the driver can only receive a possible discount for what they determine is good driving, the driver will not be punished or see their rates go up if Progressive notices poor driving habits. It is currently available in most states, and it is not mandatory in any state per Progressive’s website. The device is free, but a $50 charge if it is lost. Per the Allstate website, Allstate offers a very similar program called Drivewise, it is also a plug in device, and it is not a GPS system. It tracks the same driving habits as the Progressive system, and per the Allstate website the driver’s rates will not go up.        

Other carriers have similar devices but GPS based. Per the State Farm website, State Farm utilizes a third parties GPS system, such as General Motor’s OnStar service. State Farm’s system has garnered a little more criticism since it is connected to a GPS device, privacy advocates are afraid of driver’s whereabouts being tracked and logged. State Farm’s system is also more comprehensive, with more criteria. State Farm tracks miles driven, acceleration and deceleration habits, cornering, and average speed. State Farm also only credits good drivers at this time; they do not currently surcharge bad drivers if the information received is shown to be more hazardous driving. One downside is that the driver has to purchase a supplementary system such as OnStar, if they do not already have it on their vehicle. GMAC Insurance offers the Pay as You Drive program as well, through OnStar only, yet it only tracks the amount of miles driven, per the GMAC website, they call it Pay As You Go.   

There are two areas of concern with these programs. The main concern is privacy. With GPS systems privacy advocates complain that location data can be tracked and or sold compromising a driver’s privacy. Another concern is the punishment aspect. Will carriers eventually require all drivers to utilize the device and thus surcharge drivers they deem bad drivers per the data collected?

With more and more competition, and more and more drivers on the road, it is apparent that automobile insurance carriers will continue to devise new ways to write more profitable business, but at what cost to the consumer?