Over 3 million insurance quotes
Compare Quotes from 30+ Car Insurance Providers and Save
Compare Quotes from 30+ Car Insurance Providers and Save

How Usage Based Insurance Could Save You Money

November 25, 2013

Money being inserted into piggbyank

Usage based insurance is the latest concept in the auto insurance industry that has the potential to revolutionize the way we pay for and use our auto insurance. By creating a rating system that is personalized and dynamic, usage based insurance programs will allow people to see premiums that reflect where and how they use their vehicle. There are a number of ways in which usage based insurance programs can reduce a driver’s insurance costs.

What is Usage Based Insurance?

In order to understand how it could save you money, it’s important to get a grasp of what usage based insurance actually is. Usage based insurance is a voluntary program which uses information transmitted from your car to the insurance company to determine things like how often you drive, where you go, how many kilometers you drive in a month, and how safe your driving is based on measurements like hard braking, sharp turns, and speeding. This allows the insurance company to create an individualized premium for you based on the actual usage of your car rather than historical factors and estimates alone. Because the information is transmitted regularly, the premiums can remain in line with your current usage as it changes over time.

How Accuracy Saves Money

Usage based insurance methods allow the insurance company to get a clear picture of your exact usage. They can tell how many kilometers you drive each month, instead of you making a guess. This means that they can charge you based on how far or how frequently you actually drive rather than a guess or a historically based number that may change over time. This can actually mean you pay less over time, since you would pay a smaller bill on a month when you drive very little. On the reverse, you may pay more on a month when you drive more, however over time it’s likely to even out and result in more savings that with a rating plan that simply chooses a flat number. Accuracy means that you don’t pay based on an estimated distance number that may not apply. Distance-based and Pay-as-you-drive (PAYD) systems both work with these principles.

How Tracking Driving Habits Saves Money

Being able to track how you drive allows your insurance company to determine whether or not you are a good, safe driver – and good drivers get discounts. Pay-how-you-drive (PHYD) systems keep track of some of the signs of bad driving habits that are likely to lead to accidents. How often you brake hard, how sharply your take corners, and how often you speed are all factors that play into the likelihood that you will have an accident. If the information transmitted about your driving habits indicates that you are a good driver, you can qualify for discounts on your auto insurance premiums. This provides current information about your driving habits, rather than basing it on historical or statistical information.

Fraud, Claims, and Insurance Costs

Auto insurance fraud is a big problem, and costs insurance companies a lot of money. The systems used to track information about how a car is driven can help to prevent insurance fraud by allowing adjusters to look at the facts of an accident including where the car was, how fast it was going, and how hard the brakes were hit before impact. By allowing insurance companies to get more information about an accident, we allow them to catch potentially fraudulent claims. When insurance companies waste less money on fraudulent claims, they can pass the savings on to customers. It could also allow them to process claims and determine fault more accurately, which means that some of the ambiguity in and accident can be removed, helping to create a clear picture of what happened. Smooth claims processing also reduces insurance company costs, and accurate fault determination ensures you don’t see an increased rate as a result of an accident that wasn’t your fault.

The Overall Impact

Usage based insurance is still relatively new, so it’s not entirely clear yet what the overall impact will be on insurance rates. There is some very clear evidence that it is likely to create a reduction in rates for those who choose to use it, and may also reduce rates across the board in the future. Usage based insurance can be costly to implement, so overall reductions may take some time to take effect.

  • APT

    As long as you don’t drive like a grandma, you’ll be paying more. Put one of these devices in your car at your own peril ;)

  • Joe_Shlabotnick

    Big Brother is watching you. The last thing I’d want to do is give my insurance company consent to use personal information like this for the purpose of adjusting claims.

    An insurer wants “to look at the facts of an accident including where the car was, how fast
    it was going, and how hard the brakes were hit before impact”? Or “to process claims and determine fault more accurately”? Let them do a traditional accident reconstruction.

    I’m not giving them my personal information to let them incriminate me.

  • cknowles

    I have several comments.

    First, we already report annual mileage figures to MTO and this can also be used when renewing insurance policies, so month to month tracking and guesswork is not necessary.

    Instead of an annual policy rate, you can now charge monthly and arbitrarily adjust premiums based on distance traveled and other factors. So someone who’s car doesn’t move at all in a given month will undoubtedly pay only fire and theft coverage for that month right? Not bloody likely! Also, We already know that people drive more in summer months, so the insurance companies can now justify increased rates during those months as well.

    Everybody speeds. Speed kills, so if you habitually drive 10 km/h over the limit we can now justify increasing your insurance rates because you are NOT a SAFE driver, however when the rest of traffic is doing 120 km/h and you are the safe driver going 100km/h to save your insurance rate, you re now a ROAD HAZARD!

    I can see this only as an opt-in type of policy and the insurance companies will use my refusal to opt-in as an admission that I am a bad driver and artificially raise my rates to compensate. This despite my being over 25 years accident and ticket free.

    If the insurance companies can take a buck, they will. Don’t give me this song and dance saying you’re looking out for MY best interests when we all know that’s a lie.

    Prove to me I’m wrong.

  • disqus_zNLZSZYPwO

    They AREN’T blank. I just wrote it. I don’t know what “Disqus” is and I’ve given all my name, e-mail address, and password. What more do you want?
    My opinion is good… so PUBLISH IT!

  • mikeIH


  • disqus_zNLZSZYPwO

    my complaint was NOT my opinion! I had said, I FAVOUR usage basis ins. because it tells how u may be erratic with jerky, and quick moves, etc.

  • Skeptical at best

    And who will they share the information with? Perhaps the CRA, small business beware and the self employed.

  • Henry

    Seems to me the insurance companies are using this gimmick to make MORE money rather than save money for the insured. They expect that people who believe they drive less than normal will sign up for this. So the insurer will lower their rates slightly but after some time, they will peg a new benchmark how much they should charge for regular policies.

    So they could take the known driving habits from usage-based drivers and determine that non-usage-based policies should have much higher premiums, based on how they have pegged the usage-based policies. And then after more time, they might determine that the low usage drivers should pay more… so the usage-based drivers will eventually come back to paying the same or more than they were paying before going to usage based.

  • Peter S

    Read again the statements under The Overall Impact. The concerns of the insured regarding future costs are real.
    The Insurance Companies are following Ontario Hydro’s lead with Smart Meters. Look at the way electricity rates have increased Off-peak time vs Peak Time.

  • Danny

    Fraudulent claims? How about fraudulent insurance policies. They are searching for an excuse to make more from you. They are not in the business of saving customers money. They hate fraud because they invented it and don’t want competition.

  • JimmyDawson

    This is just another scam by the insurance companies to find new ways of raping your wallet!

  • G.P

    Yea, but how many accidents have you caused behind you doing 20km/h OVER the speed limit doing 120 on the highway zig zaging and cutting in and out, or just not getting caught SPEEDING?