Comparing Usage-Based Insurance and Behavior-Based Insurance Models

Typically car insurance works by taking your personal information – like age, driving history, location, etc. – down and giving you a set of rates that you can choose to pay monthly or pay all up front for 6 months. There may be discounts offered that help the overall cost, but nothing really substantial that really excites you or differentiates one insurance company from all the others. But did you know that majority of US drivers drive less than 10,000 miles a year? In fact, 65% of drivers pay higher premiums to subsidize the minority who drive the most. Ouch, that can definitely hurt your wallet! Luckily, there are two insurance models that are disrupting the car insurance industry and helping people save more money; behavior-based insurance and usage-based insurance.

usage-based insurance compared to behavior based insurance

Behavior-Based Insurance

Behavior-based insurance is also known as pay-how-you-drive insurance. Behavior-based insurance models measure how you drive – not how often you drive. This includes distance traveled, speed, how much the driver breaks, time of day and weather conditions. Usually, this is all measured by a device that is plugged into the vehicle or through an app using smartphone telematics.

Some major benefits of behavior-based insurance are that drivers are encouraged to be more responsible and they also have potential cost-savings on their premiums if they have “good” or “safe” driving behaviors. The downside to this type of insurance is that often time other factors affect driving behavior; like the driving behavior of those around us, weather, or even a stray animal on the road. The driver’s behavior is potentially out of their control and doesn’t necessarily deem they are are a riskier driver.

Usage-Based Insurance

Usage-based insurance is measured by how many miles you drive your vehicle, like with Metromile’s pay-mile-mile model. This type of insurance uses a device that plugs into your OBD-II port to measure the number of trips you take per day and how many miles you drive on those trips. These devices may collect other data that can be utilized by the policyholder, but this data is not used to price the premium – just the miles you drive. Metromile’s smart driving app is a great example of this because customers can use it to track their car’s location, decode check-engine lights, and even get street sweeping alerts (in select cities)!

Usage-based insurance models are based on the idea that the less time a driver spends on the road, the less likely an accident will occur. This type of car insurance is great for low-mileage drivers and can help them save on their yearly total insurance premium. Since it is pay-per-mile, you pay your premium monthly, rather than upfront because your bill will be based on how many miles you drive per month, so it will likely vary month to month. If you drive a lot, however, usage-based models may not be your best option.

Side-By-Side Comparison

But, which one is better for you? Overall, It depends on what type of monitoring you are wanting and what kind of driver you are.

Since behavior based is assessed on how you drive, you will need to make sure you are being cautious on the roads and mindful of your speed and driving habits – this means watching out for how hard you brake, being extra careful with street parking in big cities, and minding the times of day you choose to drive. This type of monitoring might make drivers feel anxious when they drive since they are constantly being tracked on every little driving behavior that might be deemed too risky. If you make a mistake, or someone else does your rates could increase and then you really wouldn’t be saving.

Usage-based insurance does not base your rates on your driving habits. You can slam on the brakes, hit the gas pedal, or drive late at night — there is no judgment and your rates will not be affected by your behavior. Traditional insurance companies may ask you your annual mileage and possibly factor it into your rate as a discount, but usage-based insurance truly charges you a premium based on how many miles you drive. Since usage-based insurance requires driver’s to plug in a device to capture the miles, your monthly bill will never be subsidized for fellow customers that might drive more than you.

Here at Metromile we truly believe that low-mileage drivers should pay less on their car insurance. This is why we have created pay-per-mile insurance. We offer full coverage policies, believe in handling all claims efficiently, and provide 24/7 roadside assistance. If you’re driving less than 10,000 miles per year, Metromile could be a great fit. Click here to see how much your savings could be.