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Pay-As-You-Go Car Insurance

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NEW YORK (MainStreet ) While four out of five car insurance shoppers say price is the largest determining factor, most consumers are not aware of pay-as-you-drive car insurance, according to an insuranceQuotes.com survey.

Pay-as-you-drive car insurance can be a good option for consumers who live in cities or don't drive frequently or far each year. These types of policies, such as "Snapshot" from Progressive, "Drivewise" from Allstate and "Drive Safe Save" from State Farm, gather information about consumers' driving habits to help determine how much drivers pay for car insurance.

"I think it is a great option for consumers to save money," said insuranceQuotes.com senior insurance analyst Laura Adams. "I think more people could be saving money by using these programs."

The insuranceQuotes.com survey found that 58% don't even know what pay-as-you-drive car insurance is and that four in ten Americans say they would never sign up for this type of policy. An additional 35% say they would sign up only if they received a discount of 25% or more.

Nearly seven in ten American motorists (69%) say they are better drivers than others, but most aren't benefiting from pay-as-you-drive car insurance.

"Most Americans consider themselves better drivers than others, but few are willing to test their abilities with a pay-as-you-drive insurance program," said Adams. "There seems to be a general lack of awareness and confusion about these programs. That's too bad, because drivers are missing opportunities to save. Signing up can only help you it can't raise your premium."

Consumers are confused about what type of information is being tracked by the insurance companies. The insurers look at each person's driving history by installing a device which records only their mileage, the time of day they are driving, how hard they hit the brakes and their speed, said Adams. The companies do not have GPS installed in their devices and the rates being offered are not based on gender or credit history.

The survey showed that many consumers had misconceptions about how this type of insurance operates most people were confused about drinking and driving (only 35% know this is not tracked), hard braking (37% know this is tracked) and the time of day you drive (42% know this is tracked).

The survey also disclosed that 38% of male motorists say they are much better drivers than everyone else, versus only 27% of female drivers. Only 1% of drivers say they're below average. The report also revealed that 18-29 year-olds tend to be the most knowledgeable about pay-as-you-drive car insurance, however, 68% answered the drinking and driving question incorrectly. The survey was conducted by Princeton Survey Research Associates International (PSRAI).

Consumers should check with their insurance carriers to determine the availability of a pay-as-you-drive insurance program and how each state regulates the program. California only allows insurance companies to track the amount of the mileage incurred by the consumer, not their speed.

Only about 1% of all drivers are enrolled in a pay-as-you-drive insurance program even though it is offered by major insurance carriers, said Adams. Most of these programs give drivers discounts for driving below 12,000 to 15,000 miles annually.

One company, MetroMile, offers rates based solely on how many miles the consumer drives. MetroMile is the only per-mile car insurance option, said Steve Pretre, CEO of MetroMile. Drivers pay a small base rate per month, plus a few cents per mile for the actual number of miles driven. For example, a typical customer might pay $30 per month plus four cents per mile driven. The number of miles driven is counted monthly using a device called the Metronome that plugs into the diagnostic port on your car and sends the data wirelessly.

"People who drive less than 10,000 miles per year should seriously consider MetroMile," he said. "MetroMile's per-mile insurance is designed to tailor what you pay directly to the number of miles you drive. If you drive less, you save more. MetroMile's average customer saves more than $400 per year."

While driving in the US is on the decline, the way traditional car insurance companies charge their customers has not evolved, Pretre said. Travel on all roads and streets dropped roughly 3.1 billion miles in February 2013, compared to February 2012, according to the U.S. Department of Transportation.

MetroMile is currently available in Oregon, but will be available in other states later this year and throughout 2014.

Privacy concerns might be one drawback to 'pay as you drive' insurance programs. These programs used by insurance companies to record your driving habits sometimes can be used to accurately infer your destination. That's what four University of Denver computer scientists found in an experiment.

"With access to simple features such as driving speed and distance travelled, inferring the destinations of driving trips is possible," according to the paper published in the proceedings of the 2013 ACM Workshop on Privacy in the Electronic Society in November. "Privacy advocates have presumed the existence of location privacy threats in non-tracking telematics data collection practices. Our work shows that the threats are real."

The scientists, Rinku Dewri, Prasad Annadata, Wisam Eltarjarnan and Ramakrishna Thurimella, developed an algorithm and applied it to data from 30 routine trips made in and around the Denver area. In 18 of the trips, the algorithm was able to place the actual destination within the top three projected destinations.

The University of Denver scientists worked with the Colorado Research Institute for Security and Privacy found that a mixture of "quasi-identifiers" can be used to infer destinations even without GPS data. "Quasi-identifiers" are driving data that are non-tracking by themselves but can be used to infer driving routes when used in combination.

In addition to measuring driving speed and distance travelled, they tracked traffic stops and turns. They matched this information to road maps to determine the potential destinations of a trip and then ranked them to deduce the most likely destination.

"We argue that customer privacy expectations in non-tracking telematics need to be reset and new policies need to be implemented to inform customers of possible risks," said the scientists in the paper.

--Written by Ellen Chang for MainStreet