What the Heck is Pay-As-You-Drive Insurance?

Consumers in this day and age have options. Want to buy a smartphone? Would you like that phone with a two-year contract or without? Would you like it to be an Android or Apple? What model?

We even have options for purchases we generally perceive as kind of “boring,” like insurance. Once we decide which of the numerous insurance companies we like the best, we hear questions like: “Would you like to bundle your home and auto insurance?” and “Would you like to save $5 per month by enrolling in paperless billing or auto-pay?”

Most consumers are aware of the fact that shopping for insurance can be an ordeal, but did you know that there’s yet another decision some insurance providers recently added into the whole insurance-buying process?

It’s called “pay-as-you-drive” or “usage-based” insurance, and most people don’t know what the heck it is. A 2014 survey conducted by Insurance Quotes and Princeton Survey Research Associates International found that surprisingly, two-thirds of Americans (64%) have never heard of, nor read anything about, this type of insurance. Have you heard of it? Check out this video below, where Insurance Quotes asked consumers on the streets about pay-as-you-drive insurance.

So, what is this mystery type of insurance? Well, with pay-as-you-go insurances, providers use telematics devices, smartphone apps, or technology that’s already built into the car (like On-Star systems) to stalk your driving behaviors — it tracks how much you drive, when you drive, and how hard you brake.

Source: Thinkstock
Source: Thinkstock

In spite of the savings, most people aren’t interested

If we told you that it could save you between 10% and 30% off of the cost of your insurance, and it could not result in an increase to the cost of your insurance, would you buy pay-as-you-drive insurance?

One of the most well known pay-as-you-drive providers, Progressive Insurance, provides a “snapshot” device, which the consumer plugs into their vehicle (underneath of the steering wheel). If you volunteer to have a snapshot installed, it can only result in a lower rate; the insurance company cannot raise your rate based on the data it finds from the device.

Although this sounds like a pretty fair deal, only 28% of drivers over the age of 65 said this type of insurance is something that would interest them. Younger drivers seem to express a little more interest, but less than half of drivers in all age groups said they wanted to “pay-as-they-drove.”


Many survey respondent were concerned about the device gathering incriminating information, or info that could result in a higher insurance rate. For instance, 52% of survey respondents were concerned the device would be able to gather info on whether or not they’d been drinking and driving, although the snapshot device cannot detect this type of thing.

Privacy seems to be another major concern, as 27% of respondents said they were worried about their personal information being shared.

Estimates published on the National Association of Insurance Commissioners say that 20% of auto insurance providers will offer some types of pay-as-you-go insurance by 2020. So, maybe we’ll all grow to like having this “mysterious” new option down the road.