What’s Behind the Surge in Usage-Based Car Insurance?

Understand This Revolutionary Type of Insurance!

The U.S. market is witnessing a true transformation in the adoption of auto insurance.

Driven by technological advances that are also influencing behavior changes, usage-based insurance (UBI) has gained significant ground.

Learn more about this growing trend!

What Usage-Based Insurance Is

Usage-based insurance is a model of auto insurance where the premium is calculated based on the driver’s actual behavior.

Instead of relying solely on traditional data like credit history and age, it incorporates broader and more immediate information.

This includes average speed, mileage driven, hard braking, and driving times.

Got the shift? Instead of paying a fixed amount based only on static factors, you get real-time updates that reflect your actual driving.

This data is collected via telematics devices, which can be installed in vehicles or integrated into smartphones through apps.

Technological Advancements: The Engine Behind the Change

Technology, the use of advanced smartphones, and the expansion of 5G connectivity have made data collection easier and more accurate.

In addition, newer vehicles already come equipped with built-in telemetry systems that communicate seamlessly with insurance companies.

Major companies like Progressive, Allstate, and GEICO have heavily invested in tech solutions to make UBI more accessible and reliable.

Shifting Consumer Behavior

Technology also triggers mindset shifts, which in turn lead to changes in behavior. Today, there is a growing appreciation for personalized and flexible consumption models.

Many Americans—especially in urban areas—are driving less frequently, whether due to remote work or the use of alternative transportation (such as bikes and electric scooters).

For these drivers, paying a fixed traditional insurance premium no longer makes sense.

The Impact of the COVID-19 Pandemic

The pandemic also played a crucial role, leaving cars parked in garages for weeks or even months. Many people started to question why they were still paying high insurance premiums.

In response, several insurers began offering usage-based plans as a temporary alternative. And those plans stuck around!

Savings and Fairness: The Main Appeals

Perhaps the strongest argument in favor of UBI is the potential for savings.

Cautious drivers who drive less and avoid rush hours or dangerous roads generally pay less than they would with a conventional policy.

There’s also a perceived sense of fairness.

Unlike traditional models, which often penalize drivers for factors beyond their control (like living in a high-risk neighborhood), UBI allows for more individualized pricing based on actual driving behavior.

Challenges and Criticisms of the Model

This type of insurance is not free of challenges or criticisms, especially when it comes to privacy concerns.

The constant collection of sensitive data raises legitimate questions about how that information is stored, used, and protected.

It can be dangerous for someone to know exactly where you’re going and how you’re getting there, right?

Another issue is data accuracy.

Sensor failures, app interference, or unauthorized vehicle use (such as lending your car to someone else) can distort the risk profile.

Moreover, drivers who regularly commute in high-traffic areas, even if they drive safely, might end up penalized due to external factors.

The Role of Public Policy and Regulation

Insurance regulation in the U.S. varies from state to state. Because of that, UBI faces clear regulatory barriers.

States like California, for instance, have stricter rules regarding the use of personal data in calculating insurance premiums.

However, there is a growing movement toward creating standards that encourage innovation while ensuring user privacy.

The National Association of Insurance Commissioners (NAIC)—the body that brings together insurance regulators from all 50 states — has been actively promoting discussions about responsible data usage in the industry.

Looking Ahead: What the Future Holds

UBI may already be paving the way for a new standard, and in the coming years, a significant portion of new auto insurance contracts in the U.S. is expected to include some form of behavioral monitoring.

Moreover, UBI could integrate with broader mobility models, such as car-sharing systems, autonomous vehicles, and smart urban transportation platforms.

Real-time data collection will be essential for dynamic and personalized pricing in a future where car ownership might become secondary.

Written by

Gabriel Gonçalves