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Q&A: Effects of Usage-Based Insurance

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​Car insurance rates are on the rise for four out of five U.S. drivers, according to a recently published report, “The 2019 State of Auto Insurance.”

According to the report, insurance companies are adopting technologies to monitor driver behavior, which has the potential to benefit safe drivers and provide extensive data about driving trends. Vehicle models with modern anti-theft and safety technology may reduce theft and collisions, but insurance companies offer few, if any, discounts for having these features in your car.

Usage-based insurance (UBI) involves the use of technology to monitor how, where and how much a person drives to assess his or her risk and price insurance policy accordingly. This telematics insurance has the potential to reduce crashes by tracking driving data but it is a small percentage of the insurance market today.

One program, Nationwide’s SmartMiles, was released in mid-February and offers insurance savings for low-mileage drivers, like people who take public transportation more than they drive, work from home or carpool frequently. The program tracks and provides data to the customer on his or her driving habits through the SmartRides program. The plan allows the driver to switch back and forth between SmartMiles and SmartRides or have different cars in the same household on different programs that fit their needs like a new driver testing how safe he or she drives.

“With the technology capabilities and soon, vehicle capabilities, we now have more confidence in our ability to get accurate mileage and believe that’s the basis of insurance in the future,” says Teresa Scharn, associate vice president of product development for Nationwide.

According to Alyssa Connolly, director of marketing insight at The Zebra, which produced the report, drivers who opt for a UBI policy likely know they can save the most by driving most safely, and some in-car technologies can help them do so.

She says that the value of some technologies might affect an insurance policy. It’s often very expensive for an insurer to repair or replace new sensor technologies, advanced windshields, bumpers, etcetera, so drivers might not see an insurance discount for driving that safer car.

FenderBender recently spoke with Scharn and sought further insight into the growing trend of usage-based insurance.

As told to Melissa Steinken

Where did the idea for the program come from? Is this a trend in the industry?

Nationwide went to its customers and asked them about their interest level in having more control over their auto insurance rates. Customers overwhelmingly were interested in controlling their auto insurance rates based on how much they drive and how safe they drive. And, this is at the core of what we’ve been seeing from the very beginning, since 2011.

Now, with the technology capabilities and the soon-to-be vehicle abilities, we have more confidence in our ability to get an accurate mileage and data on the customer’s driving. We understand that is probably the basis of insurance for the future.

How much do you think a usage-based program like this would save the customer?

The truth is, it could be significant for people who drive less. Today, our current SmartRides program is not a mileage-based program. It’s a device you put in the car or download the SmartRide app and over the first six months, you can earn up to a 40 percent discount.

It matters, and it matters a lot.

How exactly does this technology provide safety data to the customer?

There are two parts to the experience. One is you have a rate per miles, so, however much you drive is 7 cents per mile and you drive 100 miles, then that is the mileage portion of the premium.

The other piece we are doing that is pretty unique in the industry is tying it into how you drive. So, with our SmartRide experience we’ve had for many years, we know that customers are very interested in understanding how they are driving. They ask if we can help them become a safer driver.  So, we’ve incorporated that into the SmartMiles, as well.

The customer puts a device, an OBD2 device, in the vehicle at the beginning and immediately the next month they start paying for the miles they drove the prior month. And during that first six months, we’re providing them information on how they’re driving. For example, hard brakes, fast acceleration and those sort of things. At the end of six months, they can earn an additional 10 percent discount based on how much they are a safe driver.

Right now, SmartMiles is available in Illinois. Are more states to follow?

We’re still finalizing the states it will be rolled out in, but right now our plan is to roll it out into nine additional states.

We’re targeting states across the country, including states from the west coast and all the way on the east coast, as well. The states or districts we’re targeting are Washington, D.C., Indiana, Texas, Florida, Washington, Arizona, Colorado, Ohio and Virginia.​

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