Telematics Insurance

Telematics insurance is also called usage-based insurance, pay-as-you-drive insurance or pay-per-mile insurance. The central idea is that you can get a discount on your car insurance if you are safer than the typical driver (or if you drive fewer miles than average each year).

How Does Telematics Insurance Work?

Telematics car insurance programs collect data to rate your driving safety and/or track your mileage. The programs collect data related to how you drive, when you drive and where you drive to calculate your risk level. If you pose a lower risk of accident than the average driver, you can save money on your auto insurance premiums.

Vehicle Telematics

No matter the type of telematics program, insurers track policyholders’ driving behavior in real time. In some cases, you can pick the telematics technology that you would like to use. Keep in mind that different devices can track different things. For example, a smartphone app can track your phone use while driving, but a plug-in device cannot.

Telematics Devices

Common devices that are used in the telematics systems auto insurance companies use to collect usage statistics and monitor driving habits include:

• Mobile apps
• Diagnostic port plug-in devices
• Bluetooth beacons

Depending on the provider, you might be able to transmit driving data through a built-in option like OnStar as well.

Traditional car insurance costs are based on factors relating to your driving profile, none of which have to do with how well you drive day to day. On the other hand, telematics insurance programs base your rate on your current driving habits or give discounts for good behavior on the road. With telematics, the better you drive, the more you can save.

Some car insurance companies advertise that drivers can save up to 25%, 30% or even 40% on their premiums for being a safe driver with a telematics program. But, are those numbers realistic? The truth is a bit more complicated, as telematics-based auto insurance can lead to both lower or increased rates.

Telematics Car Insurance Pros and Cons

With those key concerns in mind, the table below highlights the pros and cons of telematic auto insurance:

Telematics Insurance Discount

When you sign up for a telematics program, you’ll usually get an enrollment discount, which may be five to 10%. You will either download an app or receive a telematics device in the mail. During the first policy period, the company will collect information on your driving habits.

When it’s time to renew your policy, you’ll see whether you qualify for a discount based on your driving habits and how steep your discount will be. Some programs require you to keep the tracking device installed at all times to maintain a discount. Others track your driving habits for one policy period and apply the discount to all future periods.

To get the best discount, you generally must:

• Avoid rush-hour and nighttime driving
• Have below-average mileage
• Avoid harsh braking and cornering
• Avoid quick acceleration

Drivers who see the best discounts may include stay-at-home parents, remote workers, retirees and gentle drivers.

Disadvantages of Usage-based Insurance

Not everyone saves money with telematics insurance programs, however. Even if you are a good driver, you may not see a discount if you commute to work every day and drive an average number of miles. Similarly, if you regularly drive late at night, you might not see much of a discount, either. If you spend a lot of time as a passenger, it can also be frustrating, as some programs utilizing mobile apps to track behaviors won’t be able to tell that you are not driving. This can cause you to have to dispute much of the information your app will collect.

Moreover, telematics insurance can even increase your rate depending on the program you join. It’s easy to be categorized as a “bad driver” according to telematics programs. If you tend to accelerate quickly after stopping, slam on your brakes at red lights or on the interstate, and make midnight snack runs, you probably won’t find a great discount.

Additionally, it’s possible to lose certain discounts you had in place before starting a usage-based program. For example, if you had a low-mileage discount but drove above-average miles when enrolled in a telematics program, you could lose the low-mileage discount.

Car insurance prices are also highly dependent on location and ZIP code. Your rates could change if the telematics device sees that you regularly park your car in a location that’s different from the address on your car insurance profile.

If telematics insurance doesn’t sound right for you, keep in mind there are various different ways to save money on your car insurance premiums that aren’t necessarily based on your driving performance. Here is a look at the most common car insurance discounts on the market:

Most insurance companies offer a wide variety of telematics car insurance coverage options. Since telematics insurance just changes how you are charged for coverage, you still have all the regular auto insurance policy options available.

Telematics Insurance Policy

Below are the coverage options that are commonly available with telematics car insurance programs:

• Liability car insurance
• Collision insurance
• Comprehensive insurance
• Medical payments coverage (MedPay)
• Personal injury protection (PIP)
• Underinsured/uninsured motorist coverage

Telematics Auto Insurance Products

Generally speaking, there are two main types of usage-based or telematics car insurance programs: safe driving programs and pay-per-mile programs.

Safe Driving Programs

The more common type of telematics insurance programs award discounts based on safe driving habits. Progressive’s Snapshot^®, Geico’s DriveEasy and State Farm’s Drive Safe & Save^TM are all examples. These programs usually track a combination of the following:

• Mileage
• Time of day
• Cornering
• Braking
• Speeding
• Phone usage
• Acceleration 

Since the goal is to become a better driver, these programs may alert you when you brake too hard or take a corner too fast. Most programs also show detailed information throughout the process via a mobile app. You can view your recent trips and see how well or poorly you are performing in different areas.

Pay-per-mile Car Insurance

Whether or not you have good driving skills, one of the most important factors in determining your accident risk is how often you are on the road. With pay-per-mile programs, your bill reflects the number of miles you drive. Examples include Allstate’s Milewise®, Nationwide’s SmartMiles® and the auto insurer Metromile.

Pay-per-mile insurance pricing is calculated using a base daily rate and a rate per mile. The mileage device may track other things like time of day or location of driving, but how far you go is the main thing that influences your rate for this type of program.

According to the Federal Highway Administration, the average person drives about 13,500 miles per year. If you drive 10,000 miles or less, you may be able to save money with a pay-per-mile program. The less you drive, the lower your bill will be.

Telematics Auto Insurance Providers

Two of the major usage-based programs can raise your base rate if you are a bad driver: Snapshot from Progressive and DriveEasy from Geico. The two companies will reassess and raise your base car insurance premiums if you turn out to be a bad driver. So, be extra cautious when joining these programs and make sure that you really are a safer driver.

On the other other hand, providers like State Farm and USAA won’t raise your rates, so there’s no harm in testing out their telematics programs.

We reviewed everything there is to know about telematics insurance. You can save up to 40% for being a safe driver with a telematics program. Below are some of the best telematics car insurance companies:

Telematics Insurance Companies

Below are 15 popular usage-based insurance programs. Notice that Allstate, Nationwide and American Family offer both safe driving and pay-per-mile programs.

Three Popular Telematics Programs

Here’s a closer look at three of the most popular usage-based insurance programs:

Allstate Drivewise^®

Drivewise monitors safer driving behaviors and rewards them in various ways. You get a policy discount for activating the program, with further savings unlocked through good driving habits. Savings amounts and types vary from state to state. Drivewise is a free feature of the Allstate app and is available for new and existing customers in 49 states.

Geico DriveEasy

DriveEasy gives you an individualized driving score based on safe habits behind the wheel. The program tracks things like acceleration smoothness, hard braking and phone use while driving. Drivers who log consistent safe behaviors are rewarded with lower premiums.

Those who take more risks could see rate increases depending on where they live. For drivers with risky habits, Geico’s usage-based program can offer customized safe driving tips. However, DriveEasy is only available in 31 states and Washington, D.C.

Progressive Snapshot

You can use the Snapshot program through the Progressive app or a plug-in device that connects to your car’s OBD-II port. Whichever method you choose, Snapshot tracks hard braking, fast acceleration, phone use and late-night driving. The more safe driving behaviors logged, the better chance you have at earning discounts. Be warned that your rates may increase if Snapshot finds too many bad driving habits.

Below are some frequently asked questions about telematics insurance:

Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best car insurance companies. We collected data on dozens of auto insurance providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the insurers that scored the most points topping the list.

Here are the factors our ratings take into account:

• Cost: Auto insurance rate estimates generated by Quadrant Information Services and discount opportunities were both taken into consideration.
• Coverage: Companies that offer a variety of choices for insurance coverage are more likely to meet consumer needs.
• Reputation and experience: Our research team considered market share, ratings from industry experts and years in business when giving this score.
• Availability: Auto insurance companies with greater state availability and few eligibility requirements scored highest in this category.
• Customer experience: This score is based on volume of complaints reported by the NAIC and customer satisfaction ratings reported by J.D. Power. We also considered the responsiveness, friendliness and helpfulness of each insurance company’s customer service team based on our own shopper analysis.

Our credentials:

• 800 hours researched
• 45 companies reviewed
• 8,500+ consumers surveyed

*Data accurate at time of publication.