By Autumn Cafiero Giusti
Recording devices that monitor how safely you drive are poised to bring big changes to the auto insurance industry.
More insurers are offering what’s known as usage-based insurance, meaning that they are gathering driving data from consenting customers that can ultimately help lower rates, and industry experts predict that this trend will only continue to grow as technology becomes more readily available.
“I personally believe that this will be one of the major ways in which auto insurance is rated and sold over the next decade,” says Robin Harbage, director with global actuarial firm Towers Watson, based in New York.
Insurers that offer usage-based insurance typically collect driver data through monitoring devices that motorists can plug into their vehicles. The devices connect to the vehicle’s on-board diagnostic port to collect data such as when and where you drive, mileage, speed, how fast you accelerate, how hard you brake and how sharply you turn. There are also some programs that employ dashboard cameras to monitor motorists’ driving habits.
Motorists can get insurance discounts for safe driving because the devices help insurers better measure that person’s driving habits. Some insurers offer drivers discounts just for participating. For safe drivers, the overall savings can amount to a 30% to 50% insurance discount.
The devices could be a game changer for the auto insurance industry. According to estimates from Towers Watson, more than 200,000 new usage-based insurance (UBI) policies are being written every month in North America. A survey by the firm shows that the number of U.S. consumers with UBI policies nearly doubled during the 17-month period between February 2013 and July 2014.
Until now, actuaries built predictive models for driver risk. On-board recording devices stand to change all of that. “We go form being predictors of risk to those who can actually change risk,” Harbage says.
In addition, the insurance industry will be able to use this information to provide feedback to motorists and coach them on how to become safer drivers.
Industry embraces devices
State Farm is among the insurers offering usage-based insurance. The insurer’s Drive Safe and Save program offers discounts for using State Farm’s In-Drive device, which drivers can plug into their vehicles to track their driving behaviors.
State Farm spokesman Dick Luedke says customers like the program because it empowers them to lower their premiums and motivates them to drive better. “Customers like to feel like they at least have some control over what they’re paying for a product,” he says.
So far, the early adopters in these programs appear to consist of motorists who identify themselves as good drivers, as well as teenagers whose parents want to monitor them behind the wheel.
Lytx Inc., a San Diego company that develops driver performance products, has begun marketing its flagship product, DriveCam, to teenage drivers to help them reduce their chances of premium increases from claims, as well as traffic tickets and repair costs. DriveCam is a dual-lens dashboard camera that collects video of both the road ahead and of the driver inside of the vehicle. The device also hooks up to the vehicle’s engine control module to gather data such as the vehicle’s RPM and speed, and it can tell what the posted speed limit is on a particular street and what the weather was like that day.
Lytx initially developed the cameras to help commercial fleets monitor their drivers. But more recently the product has been crossing over to the consumer side and appears to be capturing the attention of the personal auto insurance industry. Lytx spokesman Greg Lund says nine insurance firms have developed discount programs that incorporate DriveCam, and a few more insurers are positioning themselves to start offering the product.
“We feel that our program does indeed change driver behavior and reduce collisions, thereby reducing collision costs and related insurance costs,” he says.
Dash cams catch on slowly
Although on-board monitoring devices have begun to catch on with insurers, the industry has been somewhat slower to adopt devices equipped with dashboard cameras. That doesn’t preclude consumers from buying their own cameras, which usually cost about $100.
Outside of insurers’ usage-based insurance programs, simply having a dashboard camera in your car usually won’t get you an insurance discount the same way a car alarm or antilock brakes would. But experts say cameras could make motorists more aware of their own driving behaviors, which could reduce the likelihood of an accident and indirectly keep your premium lower.
“The dashboard camera changes it all. I look at it as probably the most potent, defensive tool you can have for driving that’s come along in 30 years, says Bill Gremminger, owner of DashCamUSA.com in Springfield, Mo.
Gremminger was a truck driver for several years before starting his dashboard camera business and is a big believer in relying on the cameras to provide evidence in the event of an accident or traffic violation.
“I don’t go anywhere without a dash cam. Even if I’m going with someone else, I’ll ask if I can put one in their car,” he says.
Even self-professed “bad” drivers could benefit from having dashboard cameras, he says. “People ask, ‘Why would I want to record my own bad driving?’ I say, ‘That’s fine, but you can’t stop somebody else from recording your bad driving,’” he says.
Attorney Robert Katz of the firm Katz, Stepp, Wright & Fleming in Atlanta says that as dashboard cameras start to get used more and more, it’s likely more insurance companies will offer discounts for drivers who are willing to use them.
“The plus side for the consumer would be a likely reduction in insurance rates. And for the industry, I think they’re going to look at a quicker, easier way to reduce their exposure,” he says.
Cameras can also help exonerate a driver in the event of an accident and can replay footage to show who was at fault in a collision. But on the flip side, Katz says, cameras don’t necessarily provide a full vantage point of everything that’s occurred in an accident, and the view wouldn’t be nearly as broad as an account that a human witness could provide. “It’s like a fixed eye looking in only one direction,” he says. “So what would concern me for the consumer is a dashboard camera could give an inaccurate perception of how an accident actually occurred. It won’t show everything the driver was observing.”
For instance, footage from an intersection might only show that a traffic light switched from red to green as the vehicle got closer – leaving out any evidence that another vehicle ran the light and caused an accident.
As far as dashboard cameras go, Katz suggests that consumers avoid becoming early adopters while the technology is still gaining broader acceptance. “I’d let other people be the guinea pigs for now. And then once it’s developed a bit in the industry, you’ll have a good idea to judge whether it’s a good idea for you or not,” he says.
Lund, however, believes that dashboard cameras could significantly improve driver behavior in the long run. He points out that the economic cost of motor vehicle crashes accounts for about 2% of the U.S. gross domestic product. That comes out to about $200 billion, according to a National Highway Traffic Safety Administration study. “Think about what these behavioral changes would do to traffic safety,” he says. “That would change the actuarial tables.”