Unless you follow the industry very carefully, it’s easy to be confused by the many “flavors” of usage-based or “green” car insurance. Here’s a menu.
Usage-Based Insurance is the most generic name, and sometimes goes by the acronym UBI. It simply refers to the approach of basing insurance, at least partly, on actual usage. For vehicles, it is their “usage”, which can mean many things — leading to the other “flavors” below. In the context of automobile insurance, it is understood to mean Usage-Based Auto Insurance.
“Green” Car Insurance is the name we use with consumers for Usage-Based Auto Insurance. As we explain on our website and earlier on this blog, it is “green” for two reasons: 1) it saves most consumers money; and 2) since it motivates less driving to save even more money, it reduces car emissions.
Pay As You Drive® is a trademark of Progressive Insurance in the U.S. and other companies in several other countries. So in the U.S. it should only be used as a trademark with Progressive’s products. However it is often used as a generic equivalent to Usage-Based Insurance, especially in Europe.
Verified-Mileage is the most basic type of Usage-Based Insurance, since the only “usage” it considers are the actual miles “used” driven by the vehicle. As implemented in the United States, it substitutes for “estimated mileage” that was often considered in traditional policies. Other rating factors are still used, and a discount is offered to the “normal” premium the policy owner would pay if mileage were not verified. In fact, this is the only type of Usage-Based Insurance currently allowed in California. In addition, their regulations only allow the insurers to permit certain approaches for verifying actual miles driven. More details about “green” car insurance and California will be provided in our next post.
Behavior-Based is the generic name used by Progressive Insurance and others to describe Usage-Based Insurance that considers aspects of vehicle “usage” than simply actual miles driven (like Verified-Mileage policies). These additional data can be when, how, and even where the vehicle is driven. It is “behavior-based” because all of that comes from the “behavior” of the drivers. In Europe a number of Behavior-Based policies capture their data directly from computer/communications, or “telematics”, systems in the vehicles, which have GPS to provide other services as well. OnStar is the best-known telematics system in the U.S., installed in over 5 million vehicles and advertised heavily on television and radio. In Europe the Behavior-Based policies often use GPS location data, but none currently do in the U.S. Progressive’s first field trial named Autograph™ did, but when they launched their second field trial named TripSense™ in 2004 it did not. Instead, like their current product MyRate® undergoing national roll-out, it considered miles driven, when the driving took place, and how the vehicle was driven. Like Verified-Mileage policies, these Behavior-Based policies also still use traditional rating factors to determine the “normal” premium for a vehicle under their policy. The difference is that the discount calculated by the insurer’s proprietary rating algorithm takes into account not just proven actual miles driven, but also the “behavior-based” data as well. For that reason, they can offer higher discounts to vehicle A that is driven at times and in ways that are considered lower-than-average risk of having an accident, versus vehicle B that is driven the same number of miles but with no lower-risk driving behavior counted.
Safe-Driver is a generic name sometimes used for “Behavior-Based” since discounts are offered for lower-risk, or “safer”, driving behavior. In both cases, it is important to realize that the discount is based not just on what might normally be considered “safe” driving, which is the “how”, but also on exposure to more or less danger due to the “when” driving takes place. For instance, even if you didn’t just leave the bar when you’re driving at 3 a.m. on Sunday morning, there are others who might cause your accident who did. Plus, you are more likely to be sleepy at that hour. The rating algorithms are not based on speculation like this, however, they are based on hard data from accident records and driving data for the same vehicles. Progressive, for example, used nine years’ data from their field trials starting in 1999 to develop and refine their rating algorithms to calculate discounts based on actual mileage and driving behavior for MyRate® prior to its launch in 2008.
That’s the menu of Usage-Based Auto Insurance flavors. We hope it helps avoid at least some potential confusion with terminology in this new “green” car insurance world.