Driver Behavior Affects The Cost Of Auto Insurance

How driver behavior affects the cost of auto insurance

You're most likely a safe driver, but your auto insurance premiums are likely subsidizing the cost for riskier drivers. And that means you're paying more than you should be.

A Progressive study examined more than 5 billion miles of driving behavior to determine a driver's risk of an accident based on a variety of factors such as speeding and the time of day a person is driving. According to the study, riskier drivers cost insurers 2.5 times more in claim reimbursements than low-risk drivers.

"The consumer was right all along," says Progressive's president and CEO Glenn Renwick in a statement. "For most, the rates they're paying are higher than the risk they actually present — and in many cases, much higher."

How can you determine a driver’s risk?

A driver's chances of getting into a crash vary depending on several factors, including:

• Speed — According to the U.S. Department of Transportation, driving faster than the speed limit was a factor in more than 21 percent of crashes in 2009.
• Swerving — Failure to stay in one's lane accounted for 17% of crashes.
• Under the influence — Drivers who had used illegal drugs, taken prescription medication, or consumed alcohol before getting behind the wheel were also more likely to be involved in a crash.
• Miles driven — According to a 2010 study conducted by the Conservation Law Association and the Environmental Insurance Agency Inc., there are strong correlations between a driver's annual mileage and his likelihood of filing an insurance claim. "The annual mileage of a vehicle is an important factor in determining the overall risk presented and, thus, the premium a policyholder will pay for an auto insurance policy," says State Farm spokesman Doug Nadeau.
• Nighttime driving — Drivers between 6 p.m. and 6 a.m. have a higher risk of a crash, according to the National Highway Traffic Safety Administration. The study's authors hypothesized that the higher crash rate was due to fewer drivers wearing seat belts and more drivers drinking alcohol during that time period.

According to Loretta Worters, a spokeswoman for the nonprofit Insurance Information Institute, other factors that contribute to driving risk include inattention, failure to yield right of way, overcorrecting the steering wheel, and failing to obey road signs.

Usage-based insurance

Until recently, insurance companies had no concrete way of distinguishing between low-risk and high-risk drivers until a driver was involved in a crash. The insurer would then raise the driver's risk profile and premium.

Some insurers, however, now provide usage-based programs in which policyholders voluntarily install devices in their vehicles that monitor mileage and certain types of driving behavior. The devices cannot tell whether the driver has been drinking, but they can track the erratic driving that results. Following a period of tracking a user's driving behavior, the insurer may offer a discount if the driver is determined to be "low risk."

According to Progressive spokeswoman Brittany Senary, the usage-based Snapshot program bases insurance rates on three factors: the time of day the car is driven, the distance driven, and the number of times a driver slams on the brakes.

Senary claims that after 30 days, many Progressive customers will receive a discount of up to 30%. Progressive will calculate a renewal discount based on the policyholder's continued use of the Snapshot device over the next six months.

Other companies that provide usage-based plans include State Farm, Allstate, Nationwide, and Travelers.

How consumers benefit

Traditional insurance policies charge policyholders based on factors such as age, driving record, and geographical location. For example, drivers under the age of 25 typically pay more than drivers of other ages. Usage-based plans calculate a driver's risk using actual driving data.

If you drive a lot of miles, especially at night, and slam on the brakes, you're probably a "high risk" driver who won't qualify for discounts. If you do not qualify for a discount, you will not be charged more than you are now.

Usage-based insurance plans are ideal for "people who drive less, in safer ways, and at safer times of day," according to Senary. "Those are the drivers most likely to receive a discount."