Usage-based insurance

Usage-based insurance (UBI) also known as pay as you drive (PAYD) and pay how you drive (PHYD) and mile-based auto insurance is a type of vehicle insurance whereby the costs are dependent upon type of vehicle used, measured against time, distance, behavior and place.

This differs from traditional insurance, which attempts to differentiate and reward "safe" drivers, giving them lower premiums and/or a no-claims bonus. However, conventional differentiation is a reflection of history rather than present patterns of behaviour. This means that it may take a long time before safer (or more reckless) patterns of driving and changes in lifestyle feed through into premiums.

The simplest form of usage-based insurance bases the insurance costs simply on the number of miles driven. However, the general concept of pay as you drive includes any scheme where the insurance costs may depend not just on how much you drive but how, where, and when one drives.

Pay as you drive (PAYD) means that the insurance premium is calculated dynamically, typically according to the amount driven. There are three types of usage-based insurance:

The formula can be a simple function of the number of miles driven, or can vary according to the type of driving or the identity of the driver. Once the basic scheme is in place, it is possible to add further details, such as an extra risk premium if someone drives too long without a break, uses their mobile phone while driving, or travels at an excessive speed.

Telematic usage-based insurance (i.e. the latter two types, in which vehicle information is automatically transmitted to the system) provides a much more immediate feedback loop to the driver, by changing the cost of insurance dynamically with a change of risk. This means drivers have a stronger incentive to adopt safer practices. For example, if a commuter switches to public transport or to working at home, this immediately reduces the risk of rush hour accidents. With usage-based insurance, this reduction would be immediately reflected in the cost of car insurance for that month.

The smartphone as measurement probe for insurance telematics has been surveyed

Another form of usage-based insurance is PHYD (Pay How You Drive). Similar to PAYD, but also brings in additional sensors like accelerometer to monitor driving behavior.

Metromile is a usage-based insurance startup funded by New Enterprise Associates, Index Ventures, National General Insurance/Amtrust Financial, and other investors. It offers a driving app and a pay-per-mile insurance product using a device that connects to the OBD-II port of all automobiles built after 1996. Metromile does not use behavioral statistics like type of driving or time of day to price their insurance. They offer consumers a fixed base rate per month plus a per-mile-rate ranging from 2 to 11 cents per mile, taking into account all traditional insurance risk factors. Drivers who drive less than the average (10,000 miles a year) will tend to save.

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Wikipedia