Car Insurance: Are We Getting the Discounts We Deserve?

Jim Motavalli

Jim Motavalli | May 27, 2015

“OnStar can do things it couldn’t before,” said John McFarland, a spokesman for General Motors. It’s not just about emergency services anymore—OnStar (GM’s hands-free voice communication system since 1996) can’t walk your dog, but it can unlock your car doors-- even if, like McFarland, you’re in Shanghai and the car is in the U.S. And, it can program your electric car so that it will only charge on renewable energy.

Monitoring means drivers will think twice before running that red light. (GM graphic)
Monitoring means drivers will think twice before running that red light. (GM graphic)

And it can monitor your driving-- which is potentially one, big mixed blessing. In a program with Progressive Insurance launching this summer, OnStar will act like Big Brother, collecting  data on drivers who opt-in for a 90-day assessment. If you submit the data and get a clean bill of health on braking, steering, accelerating and maintaining speed limits, you might be eligible for discounts.

The testing, which gathers data via a connection to the car’s OBD-II diagnostic port will, according to Progressive, show drivers “how they performed in important driving metrics, and how they compare against an aggregate of other anonymous subscribers also enrolled in the program.” McFarland described the program as “using analytics and the cloud to tell if you’re a good or risky driver.”

OnStar analyzes the raw data and offers it to the insured driver in a digestible form, which includes safe driving tips and whether their score allows for an insurance discount. It's then up to the car owner to submit that data to Progressive. I like the basic concept of the program, but have a question: If you opt in, then you know you’re being monitored and have a big incentive to drive like, say, Barbara Bush for three months-- after which you can revert to your normal Mad Max mode.

If you don't like your driving score, you don't have to submit it to the insurance company. (GM graphic)
If you don't like your driving score, you don't have to submit it to the insurance company. (GM graphic)

Stephen Martin, a product specialist at GM, confirms that the so-called "Snapshot” is a onetime thing, and that drivers “could drive like a hooligan after the 90 day assessment is over, but we’re confident that if they change their behavior for three months they’ll stick with it. It means better safety and security and less wear and tear on the vehicle.”

Amanda Lupica of Progressive agrees with Martin. "Our data suggest that people who participate in Snapshot do change their behaviors and drive more safely while they’re in the program," she said. "For example, we see a reduction in hard braking as drivers become more familiar with their unsafe hard-braking behavior because of the audio feedback our device provides drivers. Our hope is that as people become more aware of their driving behavior, they drive more safely as a result."

We also have some concerns about these “connected” cars getting hacked. If the bad guys can unlock your car and steal it remotely (it's been known to happen), then couldn't they perhaps get access to your driving data and other personal information, too? If the report shows you to be a terrible driver, can you be sure that data won’t get out, once it's stored on GM's corporate servers? Could it screw you up at a court date sometime down the road? (The data, Car Talk's Doug Berman discovered, is subpoenable.) But Martin says that anyone hacking into that information would get only "codes and numbers," not a customer's name and address. "The driver’s information is safe, secure and private," he said. "OnStar is very particular about that."

We'd love to trust GM, but haven't other companies said that before? (Here's looking at you, Target.)

There’s actually a long tradition of drivers being eligible for safe-driving discounts, but according to the DMV they’re usually for under-21 year-olds and the discounts are tied to driver’s education programs. You can also get discounts for taking defensive driving courses (covering stuff like traffic laws, drug and alcohol awareness, and bad weather procedures). And those discounts are often only for senior drivers.

The easiest and safest way to offer discounts, in our humble opinions, is simply to give “good record discounts” to people who have stayed out of trouble on the roads for proscribed time periods.

Your move how to drive! (GM graphic)
Your move how to drive! (GM graphic)

Speaking of older drivers, they don’t drive all that much. Want an always-garaged 1990 Lincoln Town Car with 10,000 miles on it? Check in with gramps. But is the old man rewarded for his low-mileage record? According to the Consumer Federation of America (CFA), probably not, even though the evidence shows they’re way less likely to make a claim.

“Three of the five largest insurers often give low-mileage drivers no break at all,” says CFA. According to Stephen Broceck, executive director of CFA, “This lack of concern for mileage, along with an emphasis on other non-driving factors such as occupation and income, help explain why insurers charge many lower-income drivers such high prices for minimal, state-required liability coverage.”

What’s the relationship between miles driven and income? A federal Labor Department survey shows significantly lower expenditures on gas and motor oil for people who don’t make much money. Older people as a group spent even less.

Three of the companies—Farmers, Progressive and Allstate—quoted the same premium for a fictitious 30-year-old, single bank teller with a high school degree and a perfect driving record, regardless if she drove her 2005 Honda Civic 5,000 miles annually or 20,000. That's ridiculous. At least California requires insurers to use miles driven as a factor in rates, so there the companies gave discounts of $100 to $200 annually on 5,000 miles a year. Geico and State Farm offered discounts no matter where this theoretical woman driver lived.  

Insurers should give discounts for low-mileage drivers, because, simply, they're not on the road. A study of 500,000 policies in 2009 found that the people who covered 3,000 miles or less each year had 44 percent fewer claims than average. Drivers who covered more than 20,000 miles had 28 percent more claims. It’s worth noting that OnStar subscribers are eligible for low-mileage discounts through some providers.

Despite these insurance hassles, which end up costing a lot of people money they shouldn't have to spend, Americans in general are paying less to own a car. According to AAA, owning a 15,000-mile-annual sedan will cost 58 cents a mile, or $725 a month. That’s down two percent from last year, which means you’re likely saving $178 in 2015. The biggest factor is lower gas prices, though they’re going up fairly dramatically now ($3 a gallon now at many pumps).

That rattle you hear? It's your muffler deciding whether to die or not. (GM graphic)
That rattle you hear? It's your muffler deciding whether to die or not. (GM graphic)

Let’s face it, owning a car is expensive. But how else is your local mechanic going to make his boat payments? And speaking of visiting your friendly local mechanic, OnStar now has the ability to predict that, say, your battery might go next month. That could mean replacing it in a timely manner, before it fails and requires the use of the aforementioned mechanic's tow truck. We're sure it's only a matter of time before an Amazon drone can make the drop-off, on your way to work.

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