For decades, auto insurance prices were based mainly on who you are and where you live: age, driving record, vehicle, ZIP code and, where states allow it, credit-based insurance scores. Technology is shifting the focus toward how and how much you actually drive, and, in the longer term, toward who or what is doing the driving.

What usage-based insurance is

The NAIC describes usage-based insurance (UBI) as auto insurance that tracks mileage and driving behavior. Data is collected by telematics: a plug-in device, equipment built into the car by the manufacturer, or a smartphone app. According to the NAIC, insurers may look at miles driven, time of day, where the vehicle is driven, rapid acceleration, hard braking, hard cornering and air bag deployment.

Programs generally fall into two groups:

  • Pay-as-you-drive (mileage-based): price depends largely on how many miles you drive. Useful for people who work from home or own a second car that rarely moves.
  • Pay-how-you-drive (behavior-based): price depends on driving habits such as braking, speed, phone use and night driving.

Who benefits and who may not

Low-mileage drivers and those with smooth driving habits can benefit, especially when traditional rating factors put them in a higher price group. Drivers who commute long distances at night or brake hard in heavy traffic may see smaller discounts. Program rules differ: some insurers only offer discounts, while others can also increase the price based on the data, where state rules allow. Always read how the score is calculated and how long data is kept.

Privacy questions to ask

  • What data is collected (location, speed, phone handling) and how often?
  • Is the data used only for pricing, or also for claims investigations?
  • Is it shared with third parties or data brokers?
  • Can you leave the program and have your data deleted?

State laws and regulators address these questions differently, and consumer groups have asked the NAIC for more guidance on telematics programs. Read the program terms and your insurer's privacy notice before enrolling.

Advanced driver assistance systems (ADAS)

Many new cars come with automatic emergency braking, lane-keeping assist, blind-spot monitoring and adaptive cruise control. These features aim to prevent crashes or reduce their severity. For insurance, they have two effects. They may reduce how often some types of crashes occur. At the same time, sensors and cameras sit in bumpers, mirrors and windshields, so even a minor collision or a windshield replacement may require expensive parts and recalibration. That is one reason why collision and comprehensive coverage costs do not fall automatically on newer vehicles.

Levels of driving automation

U.S. federal guidance uses the SAE J3016 classification of driving automation, which runs from Level 0 (no driving automation) to Level 5 (full driving automation). At Levels 0 to 2, the human driver is responsible for driving and must supervise the system at all times, even when features like adaptive cruise control and lane centering are engaged. At Levels 3 to 5, the automated system performs the driving task under defined conditions. A car that combines adaptive cruise control with lane centering is still a Level 2 system, which means the driver remains responsible.

How liability may shift

When a human drives, a crash is usually handled through the driver's auto liability coverage under state fault or no-fault rules. As automated driving systems take over the driving task, more claims may involve questions of product liability against manufacturers and software providers, and commercial robotaxi operators carry their own insurance. State laws on automated vehicles are evolving and vary widely. For now, personal auto insurance remains required for vehicles you own and drive, including those with driver-assistance features.

What this means for you today

  • Ask insurers whether they offer mileage-based or behavior-based programs, and compare the terms, not only the advertised discount.
  • Tell your insurer about safety features; some offer discounts for them.
  • Do not reduce coverage because your car has driver-assistance features. You are still responsible for driving.
  • Check your state's minimum auto insurance requirements, and consider limits above the minimum.

For more ways to save, see how to get affordable auto insurance, or request a quote through Polis Re. Policies are issued by licensed insurers and placed through licensed producers in your state.