Driving Patterns

State Farm is expanding its Drive Safe and Save usage-based insurance program to include cars equipped with Ford's Sync telematics system.

Also known as "pay as you go," usage-based insurance programs look at how many miles drivers put on their cars and calculate premiums accordingly. Drivers willing to share how many miles they've traveled could get discounts between 10 and 40 percent in exchange for providing the insurer with a more accurate picture of their driving patterns.

Because Sync's Vehicle Health Report already keeps track of a car's mileage, Sync-equipped vehicles from model years after 2009 are ready to report verified odometer readings to State Farm to calculate possible premium discounts. The insurer also offers Drive Safe and Save to drivers who have installed OnStar's aftermarket FMV mirror in their vehicles. In cars without compatible in-vehicle telematics systems, State Farm requires a driver to plug a data recorder into a car's OBD II diagnostic port, which then sends mileage reports back to the insurance company.

For Sync users, there's no additional cost to join Drive Safe and Save. Premium discounts are calculated every six months, when policies are renewed. Though the program will be initially limited to Utah residents, Ford said it will be expanding to other states shortly thereafter.

The Sync partnership marks a significant opportunity for the growth of usage-based insurance, which in addition to State Farm includes Progressive's Snapshot. Thanks to the increasing number of vehicles on the road with sophisticated telematics systems, it's becoming easier and easier for insurers to gain access to individual vehicle use data instead of relying on actuaries to predict risk.

What insurers can and will do with that data depends on what state laws allow and what law enforcement requires. We spoke with State Farm and Progressive last year, and both insurers told us that their programs are strictly opt-in, they don't track vehicle location data, and the information they do collect remains heavily encrypted and would not be sold to a third party. Furthermore, in states where usage-based insurance is legal, a hodgepodge of laws essentially prohibit insurers from setting individual rates based on vehicle data other than odometer readings.

However, both insurers also let us know that they can and do record other information from vehicle data streams in addition to mileage in order to predict risk. For instance, if State Farm can access altitude data from an accident vehicle, their actuaries may be able to better determine the danger of mountain driving. And even though state laws prohibit insurers from using data other than mileage for individual rate-setting, companies are required to share relevant vehicle data with law enforcement.

Whether usage-based insurance becomes more popular depends on how many people sign up, which is why insurance companies are making it easier and more attractive to join. Even if insurers don't see a financial benefit from giving discounts to drivers who already present a very low risk, at the very least the information they glean from vehicle data streams can be extremely valuable to their actuaries.

Contact Hopechart for more telematics products.