Telematics Car Insurance: What to Know

Telematics-based insurance allows auto insurance companies to tailor your premium costs to your driving behavior. Telematics devices — which include technology built into the car, plug-in devices, or smartphone apps — provide insurers with a more holistic view of your behavior on the road.^[1]

Many insurers offer discounts to drivers who accept telematics monitoring. In fact, eight out of 10 telematics-using drivers surveyed by the Insurance Research Council said their auto insurance costs declined and their driving improved after using telematics. But some drivers may see their rates go up if their telematics device detects poor driving habits. Additionally, privacy concerns and potential inaccuracies in telematics devices may worry some drivers.

Here’s what you need to know about telematics insurance to decide if it’s right for you.

What’s telematics-based car insurance?

The insurance industry is all about predicting and mitigating risk. Traditionally, auto insurance companies were only able to predict a driver’s risk of making a claim and set their rates based on driving record, demographics, location, type of car, age, gender, credit history, and self-reported mileage driven per year.^[2]

The creation of telematics-based technology allowed insurers to gather much more information about drivers to more accurately predict risk. Telematics devices can measure a number of driving behaviors that can help insurance underwriters better understand a driver’s likelihood of getting into an accident or filing a claim.

Plug-in devices you install in your car, pre-installed devices, and mobile apps are among the different telematics devices that monitor driving. These devices use sensors such as accelerometers and gyroscopes to measure things like acceleration and braking, as well as GPS data to measure when and where the vehicle is in motion.^[3]

Insurance companies incentivize telematics monitoring by offering discounts to drivers who use it. This is partially because telematics devices help insurers make more accurate risk calculations. But insurers have also found that consumers drive fewer miles and drive more safely when using telematics devices, since a lower insurance premium can be a motivator. In fact, studies have found that usage-based insurance programs can reduce the risk of accidents by 50%.^[1]

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What are the types of telematics devices?

Insurers may use several different types of telematics devices to monitor your driving behavior.

Depending on your vehicle and your insurer, you may use any one of these telematics devices.

Pre-installed

Some car manufacturers offer original equipment manufacturer (OEM) telematics devices pre-installed in new cars. When the U.S. General Services Administration leases fleet cars to federal government employees, the vehicles come equipped with OEM telematics.^[4] However, consumers may also use their pre-installed OEM telematics devices to monitor driving behavior, both for usage-based insurance purposes and also for personal use. 

Manufacturers often integrate embedded OEM telematics devices with the car’s infotainment system, which can easily connect to the driver’s smartphone.

In most cases, pre-installed OEM telematics systems have free activation and no charge for a promotional period. After that point, a monthly subscription charge for certain services connected to the telematics device may apply.^[5]

Mobile apps

Most smartphones feature an accelerometer, gyroscope, and GPS, which means they have the necessary tools to track driving behavior. That’s why several insurance companies, as well as third-party telematics companies, offer mobile apps that work as telematics monitors.

These apps generally need to run in the background to work, which means you must consistently have your phone with you and on while you’re driving. The app may drain your smartphone's battery.

Some drivers may feel uncomfortable with the idea of their insurer monitoring their driving behavior via their smartphone and that using a telematics app may increase their insurance premiums. Additionally, though insurance companies claim their telematics mobile apps can differentiate between when someone is behind the wheel or in the passenger seat, it’s possible that an app will incorrectly gather information when you’re not driving.

Plug-in devices

Plug-in telematics devices collect data about your driving habits and transmit that data via wireless phone networks to your insurance company. The most common type of plug-in device is an OBD II, which plugs into your vehicle’s onboard diagnostic port (OBD-II port) located under the steering wheel. Every car and light truck manufactured in the U.S. after 1996 has an OBD-II port.^[6]

Insurers offering plug-in devices will generally send the device to you and have you plug it in yourself as part of a simple setup process.

Bluetooth 

Bluetooth-enabled telematics devices connect wirelessly to a mobile app. This allows the telematics device(s) in a shared car to correctly identify the driver, since the Bluetooth will connect to the individual driver’s app.^[6]

What information does telematics monitor?

The National Association of Insurance Commissioners (NAIC) reports that the behaviors telematics devices measure may include:^[1]

• Miles driven: How much you drive affects your premiums. The more you drive, the more likely you are to get into an accident. Conversely, if you don’t drive often, you’re less likely to be in an accident and file a claim.

• Time of day you drive: Driving during peak traffic hours, like 4 p.m. to 6 p.m., can increase your premiums.

• Where you drive the vehicle: If you drive on busy roads or in populated cities, it can affect your likelihood of getting into an accident.

• Rapid acceleration: If you commonly exceed the speed limit to pass a slower car or speed up to make it through yellow lights, your insurance company may note your behavior and increase your premiums.

• Hard braking: Hard braking can lead to skidding or losing control of your vehicle, which increases your risk of an accident.

• Hard cornering: Taking turns too fast is a dangerous habit that can cause single- or multi-car accidents.

• Airbag deployment: Your insurance company wants to know when you’ve been in any incident that causes the airbag to deploy.

In addition to this information, a telematics mobile app will know if you make or take a phone call while driving, but it won’t know who you’re talking to or what you’re saying.

Mobile telematics apps regularly transmit data to the insurance company, usually via wireless phone networks. Some smartphone apps use Wi-Fi to transmit the data.

Unfortunately, once the insurance company has this information, it may then sell it to a third party. For example, Allstate’s data collection company, Arity, has made its 1 trillion miles worth of collected driving data available to marketers, as well as allowing insurers to access any individual driver’s specific driving behavior score. Arity has also partnered with navigation app GasBuddy to tailor suggestions to drivers based on their behavior.

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Telematics car insurance pros and cons

Telematics car insurance can help consumers feel more in control of their insurance premiums — but at the cost of insurers closely monitoring them while driving. 

Here are some benefits and drawbacks to consider:

Where to get telematics-based car insurance

Many insurers offer usage-based insurance options using telematics devices. Insurify identified six major auto insurance companies that not only offer telematics insurance but also score highly on the Insurify Quality (IQ) Score. The IQ Score is a rating on a scale of 1 to 5 that considers an insurer’s financial rating, customer satisfaction, affordability, customer support and transparency, and availability and reach.

Here’s what you need to know about the telematics insurance programs from each of these top-scoring companies.

Progressive Snapshot

Available as either a plug-in telematics device or through a mobile app, the Progressive Snapshot program rewards drivers for limiting hard braking and rapid acceleration, driving less overall, avoiding getting behind the wheel between midnight and 4 a.m. on weekends, and staying off the phone while driving.

Progressive offers an automatic discount for signing up and may provide a discount based on driving behavior. Though risky driving may increase your rates, 80% of drivers maintain or reduce their rates via Snapshot.

• Potential savings: The average driver saves $47 for the initial sign-up discount and $156 annually.

• Availability: Snapshot isn’t available in California. Availability and details may vary from state to state.

• May be good for: People who drive fewer miles than average annually.

StateFarm Drive Safe & Save

StateFarm’s Drive Safe & Save program is available either as a mobile app or through the embedded telematics device in a 2020 or newer Ford or Lincoln Drive Safe & Save Connected Car. Drivers are eligible for an automatic discount for signing up and can save up to 30% (and possibly more, depending on location) based on their driving behavior.

StateFarm promises that the Drive Safe & Save program is always a discount, which means you won’t get higher rates because of any negative driving behavior the device captures. Also, the insurer promises to never sell information it gathers through telematics.

• Potential savings: Discounts of up to 30% are available, and discounts may exceed 30% (except in New York, where caps apply). The average driver receiving a 30% discount could save $630 per year.

• Availability: The program isn’t available in California, Massachusetts, or Rhode Island.

• May be good for: Drivers who worry that telematics-based insurance may increase their premiums, and don't want their information shared with third parties.

USAA SafePilot

USAA SafePilot is a telematics mobile app that gathers information about your driving behavior and habits and assigns you a driving score. You can see specific driving insights and trends on the mobile app that can help improve your habits behind the wheel. SafePilot is only a discount program, and the driving behavior the app detects won’t negatively affect your premiums.

The SafePilot app also uses crash-detection technology, which identifies when there’s been a potential accident. USAA will reach out to the driver via the app to make sure everything is OK, and the driver can even call 911 through the app.

• Potential savings: Discounts of up to 30% are available; 10% discount on initial sign-up with the program. The average driver receiving a 30% discount could save $547 per year.

• Availability: The program isn’t available in California, Delaware, or New Jersey. And USAA only covers members of the military community and their families.

• May be good for: Parents of teen drivers will appreciate SafePilot’s accident-detection technology.

American Family DriveMyWay

American Family offers drivers a 100-day trial period of its telematics mobile app, DriveMyWay. Signing up for the program entitles you to a 10% automatic discount for enrolling. The app will track your driving habits and provide tips and suggestions for safer driving.

After 90 days of using the app, American Family will email you to let you know how your score is trending, and you can decide if you want to continue with DriveMyWay.

From there, drivers have three options:

• Get a personalized rate based on your driving score and keep the app. If you do this, you’ll receive a 5% ongoing participation discount. Your personalized rate could save you 5% to 20%, but higher-risk drivers may see their rates increase.

• Lock in your current score and get a personalized rate based on it, but delete the app. This means losing out on the 5% participation discount, but you can keep your rate based on your current driving behavior.

• Unenroll before the 100-day trial period has lapsed, and American Family will not use DriveMyWay data to calculate your insurance rate. However, you’ll lose the 10% automatic discount.

DriveMyWay is currently only available in Arizona, Colorado, Iowa, Idaho, Illinois, Indiana, Missouri, North Dakota, Nebraska, Ohio, Oregon, South Dakota, Utah, and Wisconsin, but will soon be available nationwide. Drivers in Kansas, Minnesota, Nevada, and Washington can enroll in American Family's KnowYourDrive telematics program for savings.

• Potential savings: Discounts of 5% to 20% are available. The average driver receiving a 20% discount could save $545 per year.

• Availability: DriveMyWay is currently only available in Utah. American Family has another telematics-based insurance program called KnowMyDrive, which is more widely available.

• May be good for: Drivers who want to try telematics insurance without committing.

Erie YourTurn

Erie’s YourTurn program aims to gamify safe driving. The YourTurn mobile app monitors driving habits and offers feedback for improvement. Rather than offer a discount to drivers who sign up for YourTurn, the app assigns scores to drivers, like a game. And, like a game, you can compare scores with family members, try to get onto leaderboards, and watch your trends.

Based on your scores, you could earn rewards every two weeks. You can redeem these rewards for electronic gift cards or donate them to charity. Unlike other insurers' telematics programs, Erie doesn’t use the YourTurn app data to determine your premiums.

• Potential savings: Users can earn high driving scores by driving safely. High scores earn you money that you can redeem as electronic gift cards from 25 different vendors or donate to charity.

• Availability: Among the 12 states and Washington, D.C., where Erie is available, YourTurn is not available in Washington, D.C., Kentucky, North Carolina, or New York.

• May be good for: Drivers who like gamification as a motivator.

GEICO DriveEasy

GEICO DriveEasy is a mobile-app-based telematics insurance program that offers potential discounts for your driving behavior — although higher-risk drivers may see rate increases based on their DriveEasy telematics data.

This program is especially concerned about how active smartphone use causes distracted driving. Activities like making or taking handheld phone calls or touching the screen to unlock your phone or access GPS logs in DriveEasy as distracted driving. Additionally, the app can’t differentiate between the driver using the phone and the driver passing the phone to a passenger to use the phone safely.

In most cases, this program requires every covered member of policy to use the app, and the app provides regular family report cards about driving behavior. This makes DriveEasy a great option for parents of teenagers who want to be sure their newly licensed drivers have limited distractions behind the wheel.

• Potential savings: Savings will vary depending on driving behavior.

• Availability: DriveEasy isn’t available in Alaska, California, Delaware, Hawaii, Kansas, Maine, Massachusetts, Mississippi, Montana, New Hampshire, North Dakota, Rhode Island, South Dakota, Vermont, or Wyoming.

• May be good for: Parents of teen drivers.

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How much can telematics-based car insurance save you?

The amount of money telematics-based car insurance can save you depends on a number of factors, including:

• Your driver profile

• Your driving history

• Your location

• What kind of car you drive

• Which program you sign up for

• How much you already pay

Generally, a telematics car insurance discount is expressed as a percentage off your premium. While the exact percentage can vary, the amount will usually fall between a low of 5% and a high of about 30%.

Telematics car insurance FAQs