Usage-based auto insurance, which tracks the way drivers operate in a car, can lead to lower quotes and policy premiums.
Root Insurance offers an app that tracks drivers and claims to save as much as 50 percent on average car insurance rates.
There are privacy concerns, though, and tracking problems, as Root’s app will follow the driver even when they are a passenger in someone else’s car, or even on a plane.
Mike Juang | @mikejuangnewsCNBC.com
Auto insurance companies are experimenting with charging drivers based on their actual driving rather than the typical bevy of statistics like driving history, location and age.
Rather than filling out the form, submitting your driver’s license — and being confused about all the other factors that may be used in generating an insurance quote beyond your actual driving history — you simply let the insurance company watch you drive for a little bit and come up with a quote based on that actual recent driving history.
The Root Insurance usage-based app tracks a driver for a trial period before offering an auto insurance premium quote.
The technology is called usage-based insurance. One company at the forefront is Ohio-based start-up Root Insurance, which recently raised $100 million in Series D funding, pushing Root’s valuation closer to a $1 billion valuation. Root Insurance operates in 20 states around the country, with plans to expand service to all 50 states by 2019.
Auto insurance incumbents are also experimenting with usage-based insurance, fuelled by the ubiquity of smartphones and availability of telematics devices.
Progressive Insurance, for instance, offers its customers discounts based on their driving through its “Snapshot” program. James Haas, business leader of usage-based insurance at Progressive, said it uses an app that tracks your driving and offers discounts and rewards for safe driving.
“The benefit for the consumer is both the encouragement of safer driving — and the opportunity to earn discounts for that safer driving — all in the way they want (either with the dongle or the mobile app),” Haas wrote in an email to CNBC.
In effect, the concept gamifies driving, and discounts are earned over time as a way to encourage drivers to keep the app running, which requires having location tracking turned on.
According to Progressive’s “Snapshot” privacy statement, the collected data is also used to calculate an insurance quote or the rate the driver will pay when a policy renews.
Users of Progressive’s “Snapshot” app will receive a first-term discount and a personalized insurance premium afterwards based on their driving habits, according to the “Snapshot” terms and conditions.
Root Insurance has a similar approach.
Download their app onto your smartphone, turn on location tracking, upload a picture of your license, and off you go. No need to log trips, sign on, or open the app while driving, or at all. The app runs quietly in the background, passively absorbing all sorts of data about your driving skills. Where it differs from Progressive is in the financial incentive. Root doesn’t offer discounts over time as it gather a driver’s history, or use the history for renewal quotes.
After a two-week initial trial period, out pops an insurance premium, and then the user no longer needs to keep the app running. But there’s a catch. To build a profile, the app continuously sits in the background watching you.
The persistent monitoring is necessary to build a complete profile of a user, said Dan Manges, chief technology officer of Root Insurance.