If you don’t drive much, choosing a mileage-based auto insurance policy may be a no-brainer. By driving less, you’re less likely to get into an accident and are less of a risk to an insurer.
That could lead to lower insurance premiums through mileage-based auto insurance, also called pay-as-you-drive insurance, by allowing the insurance company to install sensors on your car to record how many miles you drive each day. The discount often requires a threshold of 7,000 miles or less driven per year. Low-mileage drivers can save 30 percent or more.
But allowing an insurer to get data directly from your car could cause your insurance rates to go up, no matter how few miles you drive, if you’re an unsafe driver.
The wireless device that’s typically installed under the dashboard of a car with pay-as-you-drive insurance also records data on how hard you slam on the brakes, average speed or if you drive between midnight and 4 a.m. It can also use a GPS to show where the vehicle was driven.
Hard braking, for example, could be a sign that a driver is tailgating, which could lead to crashes.
Progressive, Allstate and State Farm are some of the insurance companies that offer pay-as-you-go telematics discounts.
One of the big advantages of mileage-based insurance for insurers is that it allows them to more accurately price premiums to how a specific driver drives, instead of driving records and statistics based on past events.
Lower-risk drivers, many of whom are also lower-income drivers, can make auto insurance more affordable, according to the National Association of Insurance Commissioners, or NAIC. The programs can also incentivize drivers to reduce their miles and drive safer.
Telematics for usage-based insurance are expected to be used by 36 percent of all auto insurance carriers by 2020, the NAIC reports.
One of the most recent entries in the pay-as-you-drive insurance business is in Pennsylvania, where in August Metromile launched its coverage in what is says is the third most expensive state nationwide for auto insurance.
According to a story in the Standard Speaker in Hazelton, PA, Metromile found in a survey it conducted that 60 percent of Pennsylvania drivers drive less than 20 miles per day and are considered low-mileage drivers who drive less than 10,000 miles each year. Nearly 48 percent of Pennsylvania residents drive less than 10 miles per day, it found.
Its researchers found that the average Metromile customer drove 6 percent less after switching to per-mile car insurance.
Metromile tracks miles with a gadget attached to a car’s on-board diagnostic port and wirelessly obtains and transmits data to the Metromile driving app. Drivers can use the app on their smartphone to see their driving trends and diagnostics. The company only tracks miles driven, not speed or how hard you brake.
Metromile customers who drive less than 5,000 per miles per year could save 40-50 percent on their car insurance, the company’s CEO told TechCrunch.
If you live in an urban area, you may already be paying more for car insurance than drivers in the suburbs. Higher congestion and crime rates in urban areas can mean more of a risk to insurers, and urban drivers who don’t drive much may be subsidizing their urban counterparts who drive a lot.
Paying per mile driven can erase that subsidy, giving low-mileage drivers the ability to pay for only what they drive and not having to worry about paying high rates because their neighbor drives everywhere.
It beats paying a lot for insurance if your car sits in the garage all day.
Aaron Crowe is a freelance journalist who specializes in personal finance topics.