Usage-based insurance

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Usage-based insurance (UBI) also known as pay as you drive (PAYD) and pay how you drive (PHYD) and mile-based auto insurance is a type of vehicle insurance whereby the costs are dependent upon type of vehicle used, measured against time, distance, behavior and place.

This differs from traditional insurance, which attempts to differentiate and reward "safe" drivers, giving them lower premiums and/or a no-claims bonus. However, conventional differentiation is a reflection of history rather than present patterns of behaviour. This means that it may take a long time before safer (or more reckless) patterns of driving and changes in lifestyle feed through into premiums.


The simplest form of usage-based insurance bases the insurance costs simply on distance driven. However, the general concept of pay as you drive includes any scheme where the insurance costs may depend not just on how much you drive but how, where, and when one drives.[1]

Pay as you drive (PAYD) means that the insurance premium is calculated dynamically, typically according to the amount driven. There are three types of usage-based insurance:

  1. Coverage is based on the odometer reading of the vehicle.
  2. Coverage is based on mileage aggregated from GPS data, or the number of minutes the vehicle is being used as recorded by a vehicle-independent module transmitting data via cellphone or RF technology.[2]
  3. Coverage is based on other data collected from the vehicle, including speed and time-of-day information, historic riskiness of the road, driving actions in addition to distance or time travelled.

The formula can be a simple function of the number of miles driven, or can vary according to the type of driving or the identity of the driver. Once the basic scheme is in place, it is possible to add further details, such as an extra risk premium if someone drives too long without a break, uses their mobile phone while driving, or travels at an excessive speed.

Telematic usage-based insurance (i.e. the latter two types, in which vehicle information is automatically transmitted to the system) provides a much more immediate feedback loop to the driver,[1] by changing the cost of insurance dynamically with a change of risk. This means drivers have a stronger incentive to adopt safer practices. For example, if a commuter switches to public transport or to working at home, this immediately reduces the risk of rush hour accidents. With usage-based insurance, this reduction would be immediately reflected in the cost of car insurance for that month.

The smartphone as measurement probe for insurance telematics has been surveyed[3]

Another form of usage-based insurance is PHYD (Pay How You Drive). Similar to PAYD, but also brings in additional sensors like accelerometer to monitor driving behavior.[4]

Potential benefits[edit]

  • Social and environmental benefits from more responsible and less unnecessary driving.[according to whom?]
  • Commercial benefits to the insurance company from better alignment of insurance with actual risk.[citation needed] Improved customer segmentation.
  • Potential cost-savings for responsible customers.Potential[weasel words][citation needed]
  • Technology that powers UBI/PAYD enables other vehicle-to-infrastructure solutions including drive-through payments, emergency road assistance, etc.[citation needed]
  • More choice for consumers on type of car insurance available to buy.[according to whom?]
  • Social benefits from accessibility to affordable insurance for young drivers - rather than paying for irresponsible peers, with this type of insurance young drivers pay for how they drive.[citation needed]
  • Higher-risk drivers pay most per use, thus have highest incentive to change driving patterns or get off the roads, leaving roads more safe.[5][6][not in citation given]
  • For telematic usage-based insurance: Continuous tracking of vehicle location enhances both personal security and vehicle security.[dubious ] The GPS technology could be used to trace the vehicle whereabouts following an accident, breakdown or theft.could[weasel words][7][better source needed]
  • The same GPS technology can often be used to provide other (non insurance) benefits to consumers, e.g. satellite navigation.[7][better source needed]
  • Gamification of the data encourages good driver behavior by comparison with other drivers.[6][better source needed]

Potential drawbacks[edit]

  • There are limits to the ability of any insurance system to predict future risk, including usage-based insurance. Some lower-risk drivers will still subsidize some higher-risk drivers, to some extent.
  • For usage pricing, driving habits must be documented, raising privacy concerns especially in the case of systems which use continuous GPS tracking of vehicles.[2][8] Personal information such as where you drive may also be inferred using only data such as speed and distance driven.[9][10]
  • Pricing plans based on behavior may be harder to compare between insurance companies, making it more difficult for consumers to price shop and reducing competition.




Metromile is a usage-based insurance startup funded by New Enterprise Associates, Index Ventures, National General Insurance/Amtrust Financial, and other investors. It offers a driving app and a pay-per-mile insurance product using a device that connects to the OBD-II port of all automobiles built after 1996. Metromile does not use behavioral statistics like type of driving or time of day to price their insurance. They offer consumers a fixed base rate per month plus a per-mile-rate ranging from 2 to 11 cents per mile, taking into account all traditional insurance risk factors. Drivers who drive less than the average (10,000 miles a year) will tend to save.

Metromile allows users to opt out of GPS tracking, never sells consumer data to 3rd parties, and does not penalize consumers for behavioral driving habits. Metromile is currently licensed to sell auto insurance in California, New Jersey, Oregon, Pennsylvania, Washington, Virginia and Illinois .[11][12][13] Metromile has not added a new state since 2015 (it started first with Oregon in 2012[14], Washington in 2013[15], California[16] and Illinois[17] in 2014, and Virginia[18], New Jersey[19] and Pennsylvania[20] in 2015).


Snapshot is a car insurance program developed by Progressive Insurance in the United States.[21][22] It is a voluntary, behavior-based insurance program that gives drivers a customized insurance rate based on how, how much, and when their car is driven. Snapshot is currently available in 46 states plus the District of Columbia. Because insurance is regulated at the state level, Snapshot is currently not available in Alaska, California, Hawaii, and North Carolina.[22]

Driving data is transmitted to the company using an on-board telematic device. The device connects to a car's OnBoard Diagnostic (OBD-II) port (all automobiles built after 1996 have an OBD-II.) and transmits speed, time of day and number of miles the car is driven. Cars that are driven less often, in less risky ways and at less risky times of day can receive large discounts. Progressive has received patents on its methods and systems of implementing usage-based insurance and has licensed these methods and systems to other companies.[23] Progressive has service marks pending on the terms Pay As You Drive and Pay How You Drive.


Allstate’s usage-based insurance program, Drivewise, began in 2010,[24] with the company launching a mobile app version in 2014.[25] The Drivewise app rewards safe driving by analyzing speed, braking, and time of day to calculate cash rewards and/or savings on a customer’s auto insurance premium.[26] The app provides feedback on each trip taken and offers tips for safe driving.

As of May 2016, Drivewise is available in 48 of 50 states plus D.C. (all but CA, NC).[27] The majority of states offer Drivewise through the app, while seven states (AK, FL, IN, MA, NY, OH, WA) currently only offer it through a car plug-in device.

After downloading the Drivewise app and enabling location services, Drivewise will automatically detect trips. Both Allstate and non-Allstate customers can download the Drivewise app and use it to receive safe driving tips as well as Allstate Rewards points, which can be redeemed for savings on brand-name merchandise through a separate website.[28]

Liberty Mutual Insurance[edit]

Onboard Advisor is a commercial lines pay-how-you-drive, PHYD It offers up to 40% discount to commercial and private fleets based on how safely they actually drive.

National General Insurance[edit]

National General Insurance is one of the first and largest auto insurance companies to institute a Pay-As-You-Drive (PAYD) program in the United States back in 2004.[29] The National General Insurance Low-Mileage Discount is an innovative program offered to OnStar subscribers in 34 states, where those who drive less pay less on their auto insurance.

This opt-in program is the first of its kind[30] leveraging state-of-the-art technology using OnStar to allow customers who drive fewer miles to benefit from substantial savings. Eligible active OnStar subscribers sign up to save on their premiums if they drive less than 15,000 miles annually. Subscribers who drive even less than that can save even more (up to 54%).[31]

Under the program, new National General Insurance customers receive an automatic insurance discount of approximately 26 percent[32] upon enrollment (existing OnStar customers receive a discount based on historical mileage).

With the subscriber’s permission, the odometer reading from his or her monthly OnStar Vehicle Diagnostics report is forwarded to National General Insurance. Based on those readings, the company will decrease the premium using discount tiers corresponding to miles driven.

Information sent from OnStar to National General Insurance pertains solely to mileage,[33] and no additional data is gathered or used for any purpose other than to help manage transportation costs. Customers who drive more than 15,000 miles per year are not penalized and all OnStar customers receive an insurance discount simply for having an active OnStar subscription.



AIOI introduced a Pay as You Drive insurance product in Japan in 2005. They partnered with Toyota to develop the technology. The technology is based on Toyota's G-Book terminals.[34]


Real Insurance[edit]

Pay As You Drive is the world's first trust-based product developed in Australia by Real Insurance. It solves a number of the problems that especially location-based solutions face, particularly privacy issues and variable premiums. Customers pay a minimum premium, and then pre-pay for kilometers.[citation needed]


Insurance Box is the first telemetry-based insurance system in Australia, and uses telemetry from a device plugged into the vehicle's OBD II port. The telemetry is used to rate driver behavior, and provide this via a "DriveScore" to the insured. Premiums are adjusted annually.[35]


Mapfre and Generali offer their Pay as you go policies in Spain since 2007, primarily for 18–30 years clients.[citation needed] In Italy SARA Assicurazioni was the first insurance company to launch a pay per use product in 2003.[citation needed]


Wubi is an insurance that evaluates your driving style with the help of an app. In the case of appropriate driving, the user is rewarded with a percentage bonus.[36]


Global telematics providers provide complete telematics solutions to many of the large Insurance or Automotive firms globally. The UK's largest motor insurance firm Direct Line Group is a UK example, others worldwide include AIG, RSA, AAA, car companies such as Renault, Nissan and other world telematic leaders.


The International Research and Intelligent Systems Global (IRIS) company's Pay As You Drive and Fleet Risk Management products won Strategic Risk magazine's "European Risk Management Product of the Year 2008". These products are currently under evaluation by two major insurance companies.[37] IRIS is located in Coventry, United Kingdom.


A number of tests of telematic auto insurance are currently underway or recently completed. These tests are being conducted in many different countries. They include:


Telematics Insurance System from AIOI patent application WO 2005/083605

There are several issued patents[40] and pending patent applications that have been filed worldwide on various inventions related to telematic auto insurance. These include:

In order to make sure that patents did not hinder its Pay as You Drive development program, Norwich Union purchased the UK version of EP0700009 and obtained an exclusive license to any EU patents that may emerge from Progressive's EU patent applications.[citation needed]

In June 2010, Progressive Auto Insurance filed a patent infringement lawsuit against Liberty Mutual over one of Progressive’s Pay As You Drive auto insurance patents.[41]

In September 2010 Progressive Auto Insurance filed a declaratory judgment lawsuit against Hughes Telematics to have several its patents covering OBDII mounted wireless data loggers declared invalid. Progressive uses these devices from a competitive supplier, Xirgo Technologies.[42]

Impaired driving[edit]

Telematics have been proposed or utilised in order to detect distracted driving. The use of telematics to detect drunk driving and Texting while driving has been proposed.[43] A US patent application combining this technology with a usage based insurance product was open for public comment on peer to patent.[44]


  1. ^ a b "Usage-Based Insurance and Telematics". National Association of Insurance Commissioners. Retrieved 22 February 2014.
  2. ^ a b J. Paefgen, T. Staake & F. Thiesse, "Resolving the Misalignment between Consumer Privacy Concerns and Ubiquitous IS Design: The Case of Usage-based Insurance", International Conference on Information Systems (ICIS), 2012
  3. ^ P. Handel, I. Skog, J. Wahlstrom, F. Bonawide, R. Welsh, J. Ohlsson, and M. Ohlsson: Insurance telematics: opportunities and challenges with the smartphone solution, Intelligent Transportation Systems Magazine, IEEE, vol.6, no.4, pp. 57-70, winter 2014, doi: 10.1109/MITS.2014.2343262
  4. ^ "Introducing ‘Pay How You Drive’ (PHYD) Insurance Insurance that rewards safe driving, 2016
  5. ^[full citation needed]
  6. ^ a b Dijksterhuis, Chris; Lewis-Evans, Ben; Jelijs, Bart; Tucha, Oliver; de Waard, Dick; Brookhuis, Karel (2016). "In-car usage-based insurance feedback strategies. A comparative driving simulator study". Ergonomics. 59 (9): 1–13. doi:10.1080/00140139.2015.1127428. PMID 26653393.
  7. ^ a b Iqbal & Lim, "A Privacy Preserving GPS-based Pay-as-You-Drive Insurance Scheme", International Global Navigation Systems Society, 2006 Archived 2008-08-12 at the Wayback Machine
  8. ^ Barry, Keith (August 19, 2011). "Insurance Company Telematics Trade Perks for Privacy". Wired.
  9. ^ Threat to Privacy Found in Auto Insurance 'Pay as You Drive' Programs,
  10. ^ Inferring Trip Destinations from Driving Habits Data by Dewri et al. (ACM Workshop on Privacy in the Electronic Society 2013)
  11. ^ Truong, Alice. "A New Take on Auto Insurance by the Mile". Fast Company.
  12. ^ Vaughan, Steve. "Pay by the mile car insurance?". Archived from the original on 2015-07-11. Retrieved 2015-07-10.
  13. ^ Marquand, Barbara. "Metromile Auto Insurance Review 2016". Nerd Wallet.
  14. ^ Missing or empty |title= (help)
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  18. ^ Missing or empty |title= (help)
  19. ^ Missing or empty |title= (help)
  20. ^ Missing or empty |title= (help)
  21. ^ One-of-a-Kind Car Insurance Program Lets Drivers Save Big Bucks Based on How They Drive
  22. ^ a b [1]
  23. ^ Desyllas; Sako (2013). "Profiting from Business Model Innovation: Evidence from Pay-As-You-Drive Auto Insurance". Research Policy. 42: 101–116. doi:10.1016/j.respol.2012.05.008.
  24. ^ Yerak, Becky (December 28, 2010). "Allstate offers discounts to drivers who let it track their driving habits". LA Times. Retrieved 24 May 2016.
  25. ^ "Allstate launches teen driving app for parents". Chicago Tribune. June 6, 2014. Retrieved 24 May 2016.
  26. ^ "High-Tech Ways to Spy on Your Teen Driver". Huffington Post. November 17, 2015. Retrieved 24 May 2016.
  27. ^ "Drivewise from Allstate". Allstate Insurance Company. Retrieved 24 May 2016.
  28. ^ "Allstate Rewards FAQ". Allstate Auto Insurance. Retrieved 24 May 2016.
  29. ^ Archived 2009-02-10 at the Wayback Machine[full citation needed]
  30. ^ "Archived copy". Archived from the original on 2011-05-23. Retrieved 2017-01-17.CS1 maint: Archived copy as title (link)
  31. ^ Lifsher, Marc (July 15, 2008). "Pay-as-you-drive policies gaining mileage in state". Los Angeles Times.
  32. ^ "Archived copy". Archived from the original on 2009-01-23. Retrieved 2009-02-23.CS1 maint: Archived copy as title (link)[full citation needed]
  33. ^ "Video: GMAC Insurance Reveals Ways for Drivers to Cut Costs on the Road". Reuters. July 1, 2008. Archived from the original on September 13, 2012.
  34. ^ AIOI 2005 annual report, page 37. Archived 2009-03-04 at the Wayback Machine
  35. ^[full citation needed]
  36. ^ Kos, Adam. "Wubi je unikátní pojištění v mobilu. Čím lépe jezdíte, tím více ušetříte". (in Czech). Retrieved 2018-11-05.
  37. ^ "IRIS earns top European accolade", The Birmingham Post, May 12, 2008
  38. ^ "King County gets $1.9 million to test drive innovative statewide car insurance program", March 27, 2007
  39. ^ Smartphone-Based Measurement Systems for Road Vehicle Traffic Monitoring and Usage-Based Insurance, P. Händel, J. Ohlsson, M. Ohlsson, I. Skog, and E. Nygren, IEEE SYSTEMS JOURNAL, doi:10.1109/JSYST.2013.2292721
  40. ^ Nowotarski, Mark, "Progressive Builds a Fortress of Patent Protection", Insurance IP Bulletin, October 15, 2004
  41. ^ Shaheen Samavati "Progressive files suit against Liberty Mutual", The Plain Dealer, June 21, 2010
  42. ^ Patent Q&A Declaratory Judgment, Insurance IP Bulletin, October 2010
  43. ^ Harold Davis "’Black Box’ idea travels to cars", The News-Times, 5/22/09
  44. ^ US patent application 20090063201 "SoberTeen driving insurance" Archived 2010-06-18 at the Wayback Machine

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