How does usage based insurance work?
Usage-based insurance (UBI) uses onboard technology to monitor your driving habits and adjust your premiums based on how you drive.
With UBI car insurance, a small telematics device is installed in your vehicle and transmits data back to your insurance company while you drive. The device logs driving metrics such as braking, cornering, acceleration, speed—even where you drive and what time of day you're on the road. If the data show that you're a low-risk driver, you might qualify for a significant discount on your car insurance premiums.
What data does usage based insurance plans collect?
The types of data collected vary from company to company, but most telematics boxes capture four key driving metrics: acceleration, braking, cornering and speed. Some devices also record where and when you drive. Once these metrics are collected and analyzed, your insurance company will determine if you qualify for a premium discount.
Here's how it works:
- Acceleration measures the rate at which the speed of your vehicle changes within a set period of time. If you increase your rate of speed rapidly (by stepping hard on the accelerator), the telematics device records that information.
- Braking is measured in a similar way to acceleration: Your vehicle's telematics box records your braking data and transmits it to the insurance company. A pattern of hard braking, where you reduce your vehicle's speed rapidly, is a strong indicator of unsafe driving tendencies.
- Cornering measures the rate and angle a vehicle travels around a corner. Approaching sharp corners or bends in the road at higher speeds should be avoided.
- Speed is calculated via the GPS in your telematics box and is compared against a database of speed limits from across the country. Staying at or below the speed limit will greatly help you reduce your premium.
- When/where you drive. Most telematics boxes have GPS capabilities that let insurance companies see when and where you drive. Where you drive and when you're on the road are two of the biggest predictors of future insurance claims.
Does telematics technology have any drawbacks?
Yes. Drivers and critics alike have two main concerns about this new technology:
- Privacy: Critics say the information that's collected could be disclosed to third parties or be used to reject claims. Usage-based insurance companies maintain that your data will remain private and secure. Make sure your insurance company requires consent before they can share your information with a third party.
- Interpretation: Some worry that a usage-based insurance plan may actually work against you. If your insurance company classifies you as a risky driver after analyzing your telematics data, in some jurisdictions, your premiums could increase.