Lowering Auto Insurance Premiums By Behavior

Auto insurance rates are determined at least in part by the actuarial model, and your car insurance company uses various factors such as your age and your driving record to assess the likelihood of you getting in an accident. But with the advent of new technology, it may now be possible to base your auto insurance rate on your personal driving behavior, rather than the behavior of your actuarial cohort. What if an auto insurer could track your actual mileage, speed, and adherence to the laws of traffic? This concept, called Pay-As-You-Drive, or PAYD, is one that is getting traction among American insurers.

What is PAYD?

Drivers who choose to sign up for the PAYD plan receive a device that plugs into their car and measures their mileage, how and when the car is being driven, and even whether the car is being maintained properly. Drivers who are using their car less often, at less risky times, and in less risky ways may be subject to a discount auto insurance premium.

Progressive Pioneers

One insurer, Progressive Insurance, has introduced a PAYD auto insurance program in several states, including Kentucky, Alabama, Louisiana, Michigan, Minnesota, Maryland and New Jersey. Progressive claims that drivers can save up to 25% on their auto insurance, but bad drivers could find their premiums go up as well – even as much as 9%.

Since the Brookings Institute conducted a comprehensive study of the PAYD system in the state of California, and concluded that PAYD is not only efficient, but also promotes safe driving, you can expect more insurers to be rolling out similar programs in next few years. Commercial fleet PAYD plans are already in place in Europe and Australia and will probably arrive stateside in the near future, as well.