Should You Try Pay-As-You-Drive Insurance?

There are good arguments for – and against – usage-based insurance.

Drivers often miss out on the best deals. Here’s how not to make that mistake
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Allstate's device only measures whether you're traveling faster than 80 miles an hour – something to consider if you live in a remote area where the highway signs read 75 miles an hour, and you occasionally creep past 80.

Who will likely benefit the most from these devices? Naturally, insurance companies would like to see every consumer travel with a telematics device, but obviously, there is little incentive for aggressive drivers (you know who you are) to sign up. It also will likely pay off if you don't practically live in your car. These devices seem tailor-made for consumers who work out of their homes or have short commutes.

That is part of what likely appeals to customers of MetroMile, a startup in San Francisco that charges based on how much you drive, not how you drive. It's an insurance plan that uses a telematics device and so far is only offered in San Francisco, Oregon and Washington. According to Steve Pretre, the company's CEO and co-founder, "the Metronome device tracks actual miles driven, and your credit card is charged at the end of the month. If you drive less, you automatically pay less."

[Read: 5 Ways to Save on Auto Insurance.]

Pretre says his average customer in Oregon saves about $400 a year over what they were paying the year before. "While the national driving average is about 11,000 miles a year, about two-thirds of people drive less than 10,000 miles per year, which is the typical break-even point between MetroMile and a traditional insurance plan," Pretre says.

"Historically, because there was no way to measure use, insurance companies pooled pricing across drivers. In effect, the people driving less than 10,000 miles per year subsidize the minority of people that drive more," he says.

Pretre says a lot of his company's consumers are city dwellers who use public transportation or bike to work but use their cars for errands and recreational activities on the weekend. Many of the company's customers also telecommute.

"Another interesting profile is seniors, people who are on fixed incomes but don't drive much," Pretre says. "We give them the opportunity to have more control over their insurance costs."

[See: 10 Unexpected Costs of Driving.]

That, of course, is the message insurers want to get out – that consumers can use telematics devices to have more control over reducing their insurance expenses. Consumers, meanwhile, can only hope that the insurers don't someday use the data to drop policies – or that insurers, especially those with GPS tracking, don't someday use the information they collect to make negative judgments about you or sell information about your driving habits to a third party.

And, of course, if you're in a car wreck, your insurer will know the time the accident occurred, how fast you were driving and how hard you braked, assuming there was time to brake. All of that information could work against you – or in your favor. You may benefit from the device, but so does your insurer.

In other words, when it comes to usage-based insurance, you may be behind the wheel, but it isn't clear who is in the driver's seat.