Fresh look at mileage-based insurance

COLUMBUS — The daily commute has been put on hold for many drivers.

Yet the cost of insuring their car parked in the driveway isn’t going away.

That has led to growing interest among drivers to reduce those costs, including usage-based programs that reward drivers for safe driving and reduced mileage.

“COVID is a harsh awakening that usage-based insurance is a smart choice,” Mike LaRocco, State Auto Financial chairman, president and CEO, told analysts on a conference call to discuss its third-quarter financial results last week.

State Auto’s program, called State Auto Safety 360, gives drivers a 10% discount for signing up. Savings could total as much as 50% when drivers renew their policies, depending on the driver’s habits, the company says.

LaRocco said more policyholders are expressing interest in the program. Surveys by J.D. Power back that up.

Before the outbreak, about 10% of consumers expressed interests in such programs. Now it’s 27%, said Kyle Schmitt, J.D. Power’s vice president and managing director.

Of that group, 55% believe they won’t be driving as much as they used to even when the outbreak eases, he said. In that group, 40% are interested in these programs.

“You’ve got a group of people who just don’t think they’ll be using their car as much. Their premiums aren’t going down,” he said.

The programs, often referred as telematics or usage-based, typically revolve around smartphone apps and devices that can be installed in cars that track such things as driver speed, braking, miles driven and when trips are taken.

All of that data allows insurance companies to better match price with the driver’s risk.

State Farm, which insures about a fifth of the state’s drivers, has Drive Safe & Save. Customers receive an initial 5% discount. The average discount is between 10% and 15%, with even higher breaks possible depending on actual miles driven and individual driving behaviors.

J.D. Power estimates about 10% of drivers currently use these programs and another 6% have used them in the past, Schmitt said.

The notion of sharing data with insurers has been a hangup in the past for some drivers, he said.

But the trade-off between privacy and savings becomes more attractive if drivers can get a discount of about 20%, a savings of around $200 or so per year in many states, he said.

Beyond saving money, these programs are fairer for consumers, said Bob Hunter, director of insurance for the Consumer Federation of America.

Traditional auto insurance policies are based on factors such as where drivers live, whether they are married, education and credit score — things that have nothing to do with driving.

“Mileage is much more accurate in terms of risk,” he said.

Because drivers have reduced their driving so much during the pandemic, many insurers are giving discounts, refunds and credits. They typically range from 15% to 25%, but the reductions are just for a couple of months.

Even if consumers choose not to try a mileage program, they should go back to their insurer if they aren’t driving much and ask for a lower rate, he said.

By 2025, Nationwide expects 70% of its new business to come from telematics programs, said Teresa Scharn, Nationwide’s associate vice president of personal line product development.

Nationwide has two programs, SmartRide and SmartMiles.

SmartMiles is geared to drivers who don’t put many miles on their car, but also rewards safe driving. Drivers are billed based on how many miles they drove the month before. SmartRide offers discounts of up to 40%. Drivers can get coaching on how to improve their driving.

Both programs cut rates by more than 20% for the average policyholder, Scharn said.

The programs are about tailoring insurance for drivers and their households, she said.

“Our goal with telematics is giving the savings back to the safe drivers,” she said.

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CREDIT: BY MARK WILLIAMS THE COLUMBUS DISPATCH