Drivers opting for usage-based insurance amid COVID-19 pandemic, study finds
If the pandemic has you driving less, this type of car insurance may be worth a look. (iStock)
The pandemic had a huge impact on American’s driving habits in 2020. With shelter-in-place orders, countless businesses closed and the prevalence of work-from-home arrangements, Americans spent less time on the road than ever.
In fact, according to the Federal Highway Administration, the average number of miles driven was down 41% at one point. To account for the dip, many car insurers began to offer rebates — often for 10 to 15% of the monthly premium — for policyholders across the nation.
"COVID-19 means people are driving a lot less," said Donald Light, director of North America Property/Casualty Practice at Celent. "Fortunate people get to work from home, and unfortunate people have no job to drive to. And there is a lot less driving to a movie or dinner or to go shopping."
The decrease in driving also spurred surging interest in usage-based car insurance — a nontraditional type of policy that allows the driver to pay based on how much they actually drive, not a flat fee grounded in guestimates. According to a study from Allied Market Research, the usage-based insurance market is projected to jump another 25% by 2027.
Is it something you should consider for your vehicles? If so, you may want to head to Credible to compare quotes online for free and see what coverage makes sense for you.
What is usage-based insurance?
Traditional car insurance policies use a flat-fee premium system. When you apply for the policy, you’ll give the insurer an estimate of how many miles you drive — a week, a month or across the year. The insurer then uses this information, as well as other factors like your age, driving record, credit score, location and more, to set your premium.
UBI policies are pay-by-mile in most cases. So instead of basing your fee on how many miles you expect to drive in your premium period, it’s based only on the miles you actually clock on the road. These miles are usually tracked using a mobile app or some sort of in-vehicle device.
For drivers who don’t drive often, this approach can often equate to serious savings.
"Savings can be significant," said Rick Chen, spokesperson for Metromile insurance. "More than 124 million Americans drive 30 miles or fewer or only a few days out of the week, which is considered low-mileage in the insurance industry."
Both UBI and traditional options can include any number of coverages — things like collision, comprehensive, underinsured motorist, etc. The difference is simply in how your premium is calculated. Learn more about how auto insurance works and is priced at Credible.
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How to pick the right auto insurance policy
No two auto insurance policies are the same, so whether you choose usage-based insurance or a traditional car insurance policy, shopping around is critical.
To start, use a tool like Credible to explore pricing from several insurers at once. When comparing your options, make sure to look at the premium, as well as how often it comes due. Some insurers have annual premiums, while others have bi-annual or monthly ones. Make sure you’re comparing apples to apples.
You should also look at things like the deductible — how much you’ll pay per claim — and the coverage limits of each policy. Finally, check reviews of the insurer too. Be sure the claims process is easy and that policyholders are happy with their service.
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What are other auto insurance options?
In addition to usage-based and traditional car insurance policies, there’s sometimes a third option you can choose from: insurance based on how you drive. It’s essentially a variation of usage-based insurance, only with more nuance involved.
"The insurer tracks how safely a person drives — speed, rapid acceleration, hard braking, etc. — through the use of a dongle that ties into a car’s performance monitoring systems or a smartphone app," Light said. "If you are a very safe driver, you will get maybe a 10% to 20% reduction in premium."
According to Light, many major insurers offer these policy options and they can be a smart way to lower your premiums if you’re a safe driver.
Of course, not-so-safe driving habits could do the opposite. If you choose this type of policy, it’s important to drive carefully and follow all traffic laws.
If the pandemic has altered your driving habits, then it may be time to revisit your car insurance policy — as well as the premium you’re paying. Use a tool like Credible to explore your auto insurance options and compare quotes today.