To save a buck, let your insurer be a 'Peeping Tom'

By Susan Ladika Posted : 04/28/2011

Car insurance telematicsIf you're willing to give your auto insurer a sneak peek into your driving habits, you could potentially save big bucks on the cost of car insurance.

Auto insurance companies have rolled out telematics devices that plug into your car's diagnostic port and measure things such as:

  • How many miles you drive
  • The speed you drive
  • How often you make sudden stops
  • The time of day you drive

Based on this data, an insurer ties your rates to your driving habits. For example, by enrolling in Progressive's Snapshot program, you could save up to 30 percent on your auto insurance rates. Snapshot is available in more than 30 states and is the most widely available telematics program.

"For the right consumer, this could be a very important discount. They get better value for their budget," says Richard Hutchinson, general manager of usage-based insurance for Progressive.

Progressive is not alone:

  • Allstate recently unveiled its Drive Wise telematics program to Illinois drivers, who also can earn discounts of up to 30 percent. The company plans to expand Drive Wise to other states in coming months.
  • GMAC offers a telematics program for OnStar subscribers that can shave 54 percent off insurance costs.
  • State Farm uses OnStar technology to reduce premiums for drivers in a handful of states.
  • American Family Insurance has enrolled drivers in a pilot program to gauge the benefits and popularity of usage-based insurance.

Other auto insurance companies reportedly are testing telematic programs to measure your driving skills.

Who benefits from telematics car insurance?

Telematics programs are a benefit to both consumers – who may get cheap car insurance – and auto insurance companies that can attract and retain safer drivers, thus reducing claims costs, says Alex Laurie, a senior consultant who handles insurance issues at Towers Watson.

"As these insurance programs are better understood, consumer demand for them will continue to grow," Laurie says.

You are most likely to benefit from telematics programs if your car remains parked most of the day, says Robin Harbage, also a senior consultant focusing on insurance at Towers Watson. For example, you may be a good candidate for a discount if you live in an urban area and use mass transit to commute to work, Harbage says.

Harbage predicts that telematics devices "will continue to become better, cheaper and easier to use. Eventually, it's likely that all new vehicles will come with built-in telematics devices."

Sandra Spann, a spokesperson at American Family Insurance, hopes telematics-based feedback on sudden stops and other bad driving tendencies will change driver habits.  

"Hopefully it will make them safer drivers," Spann says.

Privacy concerns

Some consumers and privacy groups have raised concerns about telematics programs. They wonder if some insurers might use negative information they collect about your driving habits to increase your rates. Car insurance companies such as Allstate and Progressive say your rates won't rise based on how you drive.

Programs vary from company to company. For example, Progressive does not monitor the speed you drive, but driving more than 80 mph will hurt your score with Allstate's Drive Wise program.  

Meanwhile, American Family's pilot program monitors a driver's cornering habits, Spann says.

Laurie says the fact that insurers offer consumers "the choice of whether to opt in" to telematics programs should assuage many privacy concerns.

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