Pay As You Drive Auto Insurance Gains Popularity

28 Feb 2011

Pay-As-You-Drive auto insurance programs are becoming very popular because of saving drivers up to 54% costs according to GMAC. Usage based insurance (PAYD) premiums are calculated dynamically according to a driver's vehicle type and driving style.

Pay-As-You-Drive auto insurance programs are becoming very popular because of saving drivers up to 54% costs according to GMAC. Usage based insurance (PAYD) premiums are calculated dynamically according to a driver's vehicle type and driving style.

There are two different types of coverage for telematics usage based auto insurance:

• Coverage is based on the number of minutes the vehicle is being used as recorded by a vehicle-independent module transmitting data via cellphone or RF technology.
• Coverage is based on other data collected from the vehicle, including speed and time-of-day information in addition to distance or time traveled.

Automatically transmitting information to the system, it provides a much more immediate feedback loop to the driver, by changing the cost of insurance dynamically with a change of risk. Example: An employee who starts working from home 3 days a week, avoids the risk of rush-hour accidents in that time period, which would immediatly take effect in an usage based insurance.

According to GMAC's vice president of national accounts, Tim Hogan, PAYD vehicle insurance programs help drivers to reduce their mileage and as a result can reach a discount from 8% to 54%. Mileage information is collected by a telematics-based vehicle tracking system, and your discount grows for every 2500 miles fewer you drive.

Progressive's pay-as-you-drive program is called Snapshot. It provides discounts of up to 30% per year off its regular car insurance rates. As the monitoring device must be plugged into the onboard diagnostic port, Snapshot works only for cars built in 1996 or later . tracking system, so it doesn't track where the vehicle is driven.

GMAC Insurance, in collaboration with OnStar, offers a discount in 35 states for those who have a GM vehicle equipped with OnStar and drive fewer than 15,000 miles per year. By the end of 2011, GMAC hopes to offer the discount in almost every state.