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Lowering car insurance costs with 'telematics' and usage plans

Drivewise customer William VanLeer, 61, of East Northport,

Drivewise customer William VanLeer, 61, of East Northport, on Aug. 8, 2014, has earned a 23 percent premium reduction on his 2007 Ford Mustang, lowering his total premium for that car, according to Allstate. Credit: Newsday / John Paraskevas

Long Islanders drive lots of cars -- two per household on average, according to U.S. Census data -- and it can cost big bucks to insure them.

Now, a half-dozen national insurance companies are offering motorists here a way of lowering premiums for those who agree to install "telematics" devices in their cars that measure how they drive and report the data back to the insurers. Discounts can run as high as 30 percent for motorists who demonstrate good habits.

The downside is having the insurance company know how far you drive, how hard you brake, even when and where you drive, in some cases. But there are Long Island drivers willing to make the trade-off.

Driving monitored

Marriage and family therapist Matthew Mangiapane settled on Progressive after shopping for car insurance last year. Then he heard about Progressive's Snapshot program, which offers premium discounts to drivers who agree to have their driving electronically monitored.

"I decided it would be a good idea, said Mangiapane, 29, of Holtsville.

Six months later, the premium for his 2005 Ford Taurus was cut by 29 percent, to about $1,100 a year, including collision coverage.

Snapshot, in industry parlance, is a "usage-based" car insurance plan -- in which premiums are based partly on driver behavior, not strictly on statistically predictive factors such as age, model of car, past driving record and place of residence.

Others that operate similarly include Allstate's Drivewise, State Farm's Drive Safe & Save and The Hartford's Truelane. All rely on in-vehicle "telematics," which is a broad term for equipment that transmits computerized information. All promise to save good drivers money on premiums.

The telematics devices typically plug into the car's onboard diagnostic port, usually under the dashboard. The devices are usually provided free by the insurance company -- though they must eventually be returned. Some systems instead access vehicle location data from communications systems such as General Motors' OnStar and Ford's SYNC.

Details vary by company, but the biggest discounts generally go to motorists who drive fewer miles and those who avoid hard braking, rapid acceleration and illegally high speeds, and don't travel during statistically high-risk nighttime hours.

In most plans, drivers who sign up get an automatic premium discount -- usually 5 percent or 10 percent -- and after six months of driving can get additional discounts.

Insurers say premiums usually won't increase as a result of data recorded by the in-car device, but, as with any car insurance policy, accidents and tickets can eventually disqualify consumers from any but high-cost "assigned risk" coverage. And State Farm says customers already receiving a low mileage discount might see a premium increase if their actual mileage is higher.

Allstate says about 70 percent of Drivewise participants have earned a performance discount -- averaging about 9 percent. Progressive says two-thirds of Snapshot participants get discounts, averaging $150 a year.

State Farm and The Hartford said discounts usually average 10 percent to 15 percent.

"We think it will help us attract good customers," said Dave Pratt, Progressive's general manager for usage-based insurance. With discounts based on customers' being better drivers, if they're having fewer accidents, "our profit margin is better," he said.

At least one plan, State Farm's, even records the number of turns a vehicle makes and how "sharp" the turns are -- measured in lateral G forces. That plan, and The Hartford's, also track vehicle location via global positioning systems, though none base premiums on where the cars are driven.

Progressive says some devices distributed under Snapshot also record the car's location, in a strictly experimental program, but the data do not affect premiums. The intent is to determine the number of miles driven in city traffic, said Pratt of Progressive. "We think a mile driven on a highway probably is a lot safer than a mile on city streets, but we have no way of knowing that."

Privacy concerns

There were more than 2 million vehicles registered on Long Island in 2011, according to R.L. Polk & Co.'s latest available figures, and insurance can be one of the biggest expenses of ownership. A study this year by the insurance shopping website Insure.com found New York State residents pay an average of $1,173 a year per car. That's lower than the national average of $1,503, but experts say Long Islanders and others in congested downstate counties often pay more than the state average.

Usage-based plans offer ways to lower premiums, but there are privacy concerns.

Nearly 90 percent of respondents to a September survey of more than 7,000 national consumers by the Manhattan-based business consulting company Towers Watson said they were open to buying a usage-based insurance policy as long as there was no risk of premiums increasing. But 40 percent of those interested were concerned about privacy.

"You need to know before you stick one of these devices in your cars exactly what they're measuring," warns Robert Hunter, insurance director for the Washington-based Consumer Federation of America. "They're generally a good idea," he said of the usage-based plans, "but the devil is in the details."

Long Island insurance broker James F. Sutton, who owns the East Islip agency that bears his name, said privacy concerns are one reason most of his customers don't sign up for telematics. He regularly insures customers' cars with Progressive and The Hartford.

"I think it's a little bit of the fear of the unknown and maybe a little bit of fear of 'big brother' watching you," he said.

In addition, Sutton said, some customers who are getting low-mileage discounts might be reluctant to have their insurer know how much driving they actually do.

The State Farm plan offered in New York State since January 2013 is different from the others in that it bases any discounts strictly on the number of miles driven, with data captured by telematics devices. The insurer offered its first usage-based plan in Ohio in 2009 and offers plans more similar to Allstate's and Progressive's in certain other states.

At least six of the top 10 auto insurance companies in the United States offer them in New York. One more plan, due in October from Fireman's Fund, will offer discounts based solely on mileage driven as recorded when cars are serviced or undergo state inspections, but it employs no onboard device to monitor driving habits.

Insurers who offer usage-based plans say they are a win for both customers and the insurance companies.

"The biggest benefit, from our standpoint, is having solid data that better distinguishes risk," said Scott Bruns, technology director of State Farm.

"Insurance pricing is different from the pricing of other products; at the point of sale, we don't know what the cost of that service will be."

A telephone survey of 1,000 American adults published in November by InsuranceQuotes.com, an online shopping service, found that about two-thirds of drivers who sign up for usage-based car insurance save money, but only about 1 percent of all drivers sign up.

Some companies, including State Farm, decline to disclose participation rates in usage programs, but Progressive says about 15 percent of its auto policy holders nationally are enrolled in Snapshot, which it began offering on a limited basis in 2008 and in New York in 2010.

Allstate says 25 percent to 30 percent of its car insurance customers sign up for Drivewise in the 46 states where it's available. It's been offered in New York since 2010.

State likes plans

One of its Drivewise customers is retired special education teacher William VanLeer, 61, of East Northport, who earned a 23 percent premium reduction on his 2007 Ford Mustang, lowering his total premium for that car and a 1994 Ford Bronco too old to accommodate the Drivewise device from $1,266 a year to $1,096 -- or 13.4 percent, according to Allstate.

"At this point, I drive conservatively," he said.

New York's Department of Financial Services, which oversees the insurance industry, wants to see more usage-based plans become available. In a May 27 circular to insurers, superintendent Benjamin M. Lawsky said, "Because telematics permits insurers to capture real-time data, it allows companies to make more nuanced decisions concerning underwriting and to better align pricing to risk."

The state says two other insurers, Allstate subsidiary Esurance and Utica National, also offer usage plans in New York.

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