Pay-As-You-Go Car Insurance: Best Thing Ever, or Worst Thing Ever, For Customers?

You can buy a lot of services based on how much you use them. Cell phones are just the tip of the iceberg; you can get everything from stock photos to video games on a pay-as-you-go basis. So what about car insurance? Can that also be pay-as-you-go?

It can be, but it depends on how much privacy you’re willing to give up, something that infuriates consumer advocacy groups — even as they cheer the idea of more granular pay scales so consumers pay only for what they need.

At the heart of the problem is the metering device most insurers require you to install as part of the program. The device tracks how far you drive and when you drive: those who drive fewer miles at safer times of day, namely during daylight hours and especially not late at night, are qualified for lower insurance rates. The idea is that it allows the insurer to match your data against the criteria of the program, and if you fit the criteria, you get the lower rates. If not, well, tough.

The insurers point out that the device isn’t a tracking device: there’s no GPS in any design. Nor does the device track how fast you’re going: it’s limited to mileage and times of day only. Still, that’s more than some people want to allow, and many consumer insurance advocates find it frustrating that insurers want people to surrender their privacy in order to try for a discount they might not even get. Similarly, some people are shut out of the program altogether: if you work the late shift, you’re essentially wasting your time trying to get the discount. Driving at late hours puts you at higher risk of a collision, with more drunk drivers and sleepy drivers on the road.

Even worse, from the consumer advocate’s viewpoint, not all insurers are willing to pay for a custom device, and only make the program available to customers driving cars equipped with services such as OnStar. Once again, it creates a financial barrier: don’t feel like paying for OnStar service, or don’t want to drive an OnStar vehicle? Find another insurer. And, just to rub it in, the OnStar vehicles are clearly equipped with GPS; the insurer may not collect the data yet, but that might change in the future.

If this sounds like a bad deal, well, it depends on your situation. Most customers who qualify save around $150 on their car insurance. Some programs offer a small discount, usually 5%, just for signing up for the program in the first place. For others, the data collected is used to qualify the driver for a variety of discounts that they may not even be aware they can get on their insurance.

Even consumer advocacy groups want pay-as-you-go insurance. For years, they’ve argued the systems put in place by the insurance companies give people more insurance than they need. This means people drive more, putting them at more risk for accidents and polluting the environment.

It’s likely a debate that will go on for a while, but if you drive relatively little and mostly during the day, consider asking your insurer if they have a program like this. The savings could be well worth it.

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