Pay-as-you-go car insurance -- is it good-to-go for you?
Car insurance companies know that pay-as-you-go can present an enticing equation to motorists: driving safely plus driving few miles equals potential savings.
Progressive's Snapshot, probably the best known and most advertised PAYG, dangles the promise of up to a 30 percent discount on premiums. Ubiquitous mascot "Flo" gushes about Snapshot in oft-aired TV ads (here's one, up very close and personal with Flo).
State Farm also offers a heavily promoted PAYG, called In-Drive. Company officials say In-Drive could reduce coverage costs by as much as 50 percent for some drivers.
Progressive and State Farm aren't alone in the PAYG arena. Allstate, The Hartford and Travelers, among others, have similar programs, so check with your carrier or shop around if you think you qualify.
How does pay-as-you-go car insurance work?
The way Snapshot works is typical of PAYG programs: You plug the Snapshot device into your auto's diagnostic port (most cars beginning in 1996 have them) and it tracks time of day and vehicle speed, how many miles driven and how often you brake hard. The transmitter also tattles to Progressive if it's been disconnected.
Richard Hutchinson, the company's general manager of usage-based insurance, says Snapshot rewards conscientious drivers who don't rack up the miles. He adds that more savings could be available if your car stays parked during peak accident hours (between midnight and 4 a.m.) The device, which is free, must be installed for at least 30 days, with the option to leave it in longer (up to six months) for a more complete motoring profile and possibly a larger discount.
"It's a purely voluntary program, so you don't have to do it if you don't want to," Hutchinson says, adding that discounts could reach 30 percent.
In-Drive, which also has a plug-in device that monitors the same driving habits, has even greater potential, according to Kip Diggs, a State Farm spokesperson. He claims up to a 50 percent cut is possible.
Missy Lundberg, another State Farm spokesperson, says you immediately receive about a 10 percent discount on premiums for liability, medical payments, collision and comprehensive coverage. She adds that another 20 percent might be clipped from your payments if you don't go above 12,000 miles a year, the national average.
Additional discounts would come over time, depending on how consistently you drive safely and when you drive, says Lundberg. Customers can track their performance, and the progress of discounts at State Farm's website. Snapshot users can do the same.
Snapshot doesn't have a monthly fee, but In-Drive does. Diggs says the package is free for the first six months after a $10 activation fee. Then, there's a $5 to $15 monthly charge, with much of the cost for OnStar service, which is bundled into the In-Drive package.
OnStar provides one-touch emergency response, roadside assistance, stolen vehicle location, vehicle diagnostics alerts and maintenance reminders, mapping and speed alerts.
Must-know details of pay-as-you-go car insurance plans
Although Progressive, State Farm and other insurers often stress that your rates shouldn't rise once they have a driving profile, there are exceptions. For instance, if you live in Rhode Island and opt for Snapshot, Progressive's website notes that your rates could jump by up to 9 percent if you don't meet program requirements (for more, see "3 things you don't know about pay-as-you-go insurance").
Consumer advocates are also concerned that a driver's privacy could be compromised if insurers share details with third parties.
Sharon Goott Nissim, the consumer privacy counsel for the Electronic Privacy Information Center (EPIC), says the risk is that information could be used in advertising targeted at motorists or shared with police during accident investigations.
"There is the question of how this collected data is retained," she explains. "We don't know how the company is dealing with this data -- they could be turning the data into your (driving) score and then discarding the raw data as they use it to update the score."
She continued, "But they could be disclosing the data to commercial partners, particularly locational data, which is very valuable to advertisers. Also, law enforcement may seek out data -- and insurance companies may be willing" to give it.
State Farm representatives point to the company website for privacy information. The site offers various details, including that "we do not allow those who are doing business on our behalf to use our customer information for their own marketing purposes."
Progressive's website has this to offer: "We won't share Snapshot data with a third party unless it's required to service your insurance policy, prevent fraud, perform research or comply with the law. We also won't use Snapshot data to resolve a claim unless you or the registered vehicle owner gives us permission."