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If you've reduced the number of miles in your commute because you want to save on gas or you're in between jobs, you may be eligible for a new discount program that can reduce your auto insurance rates.
Historically, insurance companies offered discounts of 5 percent to 10 percent to those who drive just a few thousand miles a year. Now, technology exists to let those drivers opt in to a new type of usage-based coverage called pay-as-you-drive insurance.
Under this kind of program, drivers voluntarily plug a high-tech device into their vehicle that records the miles traveled and when the automobile is driven and transmits the information to the insurer. Armed with this detailed data, insurance companies can offer discounts of 25 percent to 50 percent to some drivers.
Two companies, Progressive Casualty Insurance Co. in Cleveland and GMAC Insurance in Winston-Salem, N.C., offer pay-as-you-drive insurance in multiple states. Other providers, such as The Hartford insurance company in Hartford, Conn., and Bellevue, Wash.-based Unigard Insurance Group, report that they are pilot-testing similar programs.
"For consumers who view themselves as lower-mileage drivers, this is a very innovative way to save money," says Richard Hutchinson, general manager of usage-based insurance at Progressive.
Despite the promise of lower rates, this trend troubles some privacy advocates. Pay-as-you-drive technology can tell insurance companies when you're driving and maybe even where you're driving, says Richard Holober, executive director of the Consumer Federation of California. If the data isn't needed to compute rates, he says, they should not collect it.
"We're concerned that there are those in the insurance industry who would like to gather a lot of information that's not their business," Holober says.
People in the insurance industry agree that privacy concerns are important, but they say there are safeguards in place to protect consumers.
"Each insurance company has a privacy policy that's audited by the department of insurance," says Sam Belden, a vice president at Insurance.com, an online auto insurance agency based in Solon, Ohio. "I can't think of many more regulated industries than insurance."
David Snyder, vice president and assistant general counsel for the American Insurance Association, an industry trade group in Washington, D.C., added that insurance companies collect data for the purpose of setting rates. "If they're going to use it for other purposes, they must get permission from the consumer," he says.
The question for consumers is: Are reduced insurance rates worth sharing your personal driving information with your insurance provider?
Here are five things to consider before buying pay-as-you-drive auto insurance.
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| 5 factors to consider before buying |
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1. Low-mileage drivers benefit the most. John O'Donnell, vice president of business development at GMAC, says that his company implements a tiered system for low-mileage discounts, starting at 15,000 miles driven a year.
With 15,000 miles, the discount is 13 percent off the driver's premium, he says. From there, discounts climb progressively to 54 percent for people who drive less than 2,400 miles annually.
Even auto owners who drive several thousand miles a year can save money with these plans if they have secondary cars.
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