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Telematics 101: Get the Best Safe-Driving Deal

For some people, plugging a little device into their car’s diagnostic port in exchange for a discount on their auto insurance is a no brainer. For others, no discount is worth allowing their insurance company to watch over their shoulder during their morning commute.

But, regardless of how you feel about them, those so-called telematics devices appear to be here to stay.

According to a recent study by Pew, about 37 percent of all drivers said they would be willing to install a telematics device in exchange for a discount on their auto insurance. Meanwhile, 45 percent of drivers said they wouldn’t consider such surveillance, with 16 percent of respondents saying it all depended on the details.

Nearly every auto insurer has a telematics program now, according to the National Association of Insurance Commissioners, and  all but two us states allow insurers to use telematics devices to set premiums. Only California and New Mexico say they are off limits, however every program isn’t available in every state that allows it.

Progressive’s Snapshot program was one of the first telematics programs to be introduced. Since 2008, Progressive says it has saved more than 3 million drivers an average of $130 each policy period through the program.

Allstate’s program is called Drivewise. Liberty Mutual has RightTrack. State Farm calls its program Drive Safe & Save.

Different names, but telematics technology the same

Most of the programs operate essentially the same according to the NAIC. Typically they either use a plug in device or a mobile app installed on your smartphone. The plug in device goes into your vehicle’s onboard diagnostic port — the small plug under your steering column that your mechanic uses to test for engine faults.

That device typically tracks things like your acceleration, your hard braking, time of day you typically drive, how many miles you drive each day, and in some cases where you drive.

The smartphone-based programs are similar, but instead of a third-party device you plug in, you install the app and let it use your phone’s GPS and Bluetooth connection with your car to track your behavior.

In general, the insurers say that drivers can only benefit by using telematics programs.

“RightTrack can only help customers save on their insurance – no matter how they drive,” said Glenn Greenberg, spokesman for Liberty Mutual.

The insurers generally give you an initial discount merely for enrolling — say 5 percent — and then based on your driving, knock an additional chunk off — up to 30 percent.

Most of the companies say that you can’t be penalized for using the devices, no matter how hard you slam on the gas and the brake, but according to NAIC, that may eventually change as more and more drivers adopt the programs. As it stands, the insurers appear to be benefiting from a self selection bias that means that the best drivers are the ones that are signing up, while the drivers with lead feet are steering clear.

NAIC said that so far, each program has leaned on proprietary devices that feed proprietary data, meaning that if you get a 30 percent discount with Liberty Mutual and then switch insurers, that discount stays behind.

That might change moving forward with companies like Veririsk, which is working with automakers to collect drivers’ information from programs like General Motor’s OnStar or Honda’s HondaLink to create databases of driver behavior, much like credit bureaus collect people’s payment history.

With those third-party programs, your driving behavior, and potentially your discount, could then move insurers with you.

Driver discounts just the beginning

Aside from the discounts for using telematics programs, another major benefit is that the programs tend to change driver behavior for the better, according to an article published in the Insurance Journal, which showed that more than half of drivers participating in these programs reported that they have made changes in how they drive. That is because as people know they are being watched, they tend to engage in risky behavior less often.

According to NAIC, the best programs are the ones that give you a dashboard that allow you to log on and get regular feedback on each day’s driving behaviors. Programs that merely give a score at the end without that feedback don’t tend to effectively change driver behavior. NAIC also said those programs with regular feedback are the ones that insurance regulators tend to be more likely to approve, because they clearly tie specific driving patterns to specific pricing.

Another article in the Insurance Journal showed that Millennials are more likely than other age groups to take advantage of telematics programs — with 88 percent saying they are willing or interested in participating.

However, those younger drivers are far from the only people who are participating.

“The program has been popular across the board,” Greenberg said.

He added that telematics programs are especially helpful for parents who are teaching their teens responsible driving habits.