Car insuranceWould you willingly let your car insurance company play backseat driver every time you hit the road?

Hundreds of thousands of drivers have already invited auto insurance company Progressive (PGR) to ride along. Lured by the prospect of substantial discounts on their car insurance, these drivers are allowing the company to track their driving behavior through its "Snapshot" usage-based program.

Progressive isn't the only company hitching a ride with customers who don't mind their every turn being tracked. (See "Save On Premiums With Pay-As-You-Go Car Insurance" for more.)

Are you really rewarded for good driving?
Progressive claims that its Snapshot program rewards "good drivers" by offering discounts of up to 30%. But a closer look at the driving behaviors they track shows that is not strictly true.

After it's been installed in your car, the Snapshot device collects data about miles driven, the time of day one drives, and braking patterns. While this information may reveal a great deal about the degree of risk a driver imposes on an insurance company, it does not say much about whether someone is a good driver.

To see how this is the case, let's take a closer look at how Progressive uses this data to rank customers as high-, medium-, or low-risk.

  • Miles driven: Progressive recommends that drivers not drive more than an average of 30 miles per day (about 11,000 miles annually) if they want to receive a discount. Driving a greater number of miles makes people greater insurance risks. After all, the more people drive, the more likely they are to get into accidents. But mileage alone doesn't make someone a bad driver.
  • Driving times: Progressive rewards drivers who are on the road during times that pose lower risks for accidents. For example, it is more likely to reduce rates on customers who do most of their driving in the middle of the day than customers who regularly drive in rush hour traffic. The company is also less likely to decrease rates on those between midnight and 4 a.m. Prospective customers should note, though, that while information about the times of day people drive may indicate their level of risk for accidents, it does not indicate their driving ability.
  • Brake patterns: Progressive also rewards drivers who have fewer "hard brakes," (i.e., fewer instances in which they decrease their speed by more than 7 miles per second). While this information can indicate bad driving habits, such as tailgating, braking patterns often have a lot to do with the driving conditions.

So it's not quite accurate to say Progressive's Snapshot program rewards good drivers. Rather, it rewards lower-risk drivers. Good drivers who have long commutes, live in urban areas, or whose schedules require them to drive during high-risk times won't qualify for the discount.

In fact, if that describes your driving patterns, you may end up paying more for your car insurance over time.

The trade-offs
Consumer advocates are concerned that Progressive's Snapshot program will eventually be used to raise rates on customers. And the move toward this outcome may not be straightforward.

Progressive claims that it will not raise rates based on the data gathered through the Snapshot program. However, if lower-risk drivers are earning discounts of up to 30% for their lower-risk behavior, it's likely that Progressive will want to recoup some of the expenses incurred by its higher-risk customers. One way to do this would be to increase the starting rates on customers who do not want to participate in their tracking program and those who do not meet its standards for "good" driving.

Also worth considering is the impact Progressive's Snapshot program will have on the auto insurance industry as a whole. As Progressive reaps the rewards associated with gaining more low-risk customers, other companies will have to make a choice -- either increase rates as the percentage of high-risk drivers in their customer base rises, or implement Progressive's strategy and create increasingly granular insurance offerings to match the risk levels associated with each customer.

So while some drivers may indeed see declining insurance rates, many others will see them rise, through no fault of their own. So before opening your car door and letting your insurer ride along, take a closer look at how the program works, and determine whether the trade-offs are worth the rewards.

Motley Fool contributor M. Joy Hayes, Ph.D. is the principal at ethics consulting firm Courageous Ethics. She doesn't own shares of any of the companies mentioned. Follow @JoyofEthics on Twitter.


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13 Comments

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grandmacrockervicki

Don't get one of these crap devices to save money. What a joke I am not with progressive but another company that also offered such savings well I am a home health provider so I drive my clients to Dr spots...shopping..etc. My husband has a 32 mile commute one way. Neither one of us has had a ticket or accident for many years.......I'm talking almost 30 years for me and never for my husband......but our rates continue to climb...oh and did I mention my truck driver husband has a 250000 and a 500000 accident free safety award....what a joke

August 09 2014 at 1:47 AM Report abuse rate up rate down Reply
Josh

DO NOT ENROLL IN SNAPSHOT. I am a car enthusiast and and love my vehicles. I had the bright idea to enroll in the Snapshot program with one of my weekend cars. My initial discount was mere 7% even after only driving the car 66 miles and only 2 hard brakes. I would settle for this if the device didn't destroy my engine control computer. 7% percent discount which equated to $22 off every 6 months doesn't cover the $182 computer replacement. Symptoms showed up immediately after plugging the device in and starting my car. First the thing I noticed was three beeps from the device and my air bag light illuminating. I didn't think much of it at first thinking it was just a coincidence. I hadn't even made it out of my subdivision before my car quit on me. 14 years of driving and I have never had a car just turn off while I was driving. I decided quickly to cancel my drive for the day and give me a car a good once over. I was still under the impression it was just coincidence. Fuses checked, battery and connections checked and since I'm under the hood at this point did a full inspection on fluid levels, tire pressures, ect. Fast forward to the next weekend, start my car up and the air bag indicator light is still illuminated, I just shrug it off. I'm am roughly ten minutes down the road and I see "ABS INOP" indicator light up. Well that is a new one and change my destination to a mechanics place. We remove the Snapshot and run a diagnostics which comes back with various error codes. At this point I'm a little frustrated, I have owned this car for 6 years and perform regular maintenance. I have only had one unexpected problem in 6 years with this car, a coil pack burned out. Now the computer is throwing various error codes. Mechanic resets the computer and for reasons I'm still not sure I plugged the Snapshot device back in. Surprisingly no more problems that day. Two more trips after that, car turns itself off randomly, my air bag lights is on again, and my low oil idiot light is on. In case you are wondering, I immediately checked the oil dipstick, oil levels are good. So what have a learned, even the full 30% possible discount is not worth the risk.

January 30 2014 at 12:53 AM Report abuse rate up rate down Reply
jak3bb14

buying car insurance with Geico is the biggest hidden cost, they want pay off and you stand the biggest chance of getting sued, and having to hire a lawyer.

my recommendation would be to get quotes from a small, independant agency like 4autoinsurancequote.com (google them) for cheap, fair quotes

November 27 2013 at 11:40 PM Report abuse rate up rate down Reply
grace_extreme

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September 03 2012 at 5:12 AM Report abuse rate up rate down Reply
grace_extreme

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September 03 2012 at 5:12 AM Report abuse rate up rate down Reply
kafienkarl

RomneyCare socialized medicine/healthcare insurance.

August 27 2012 at 7:55 PM Report abuse rate up rate down Reply
janka51

having insurance with Geico is the biggest hidden cost, they want pay off and you stand the biggest chance of getting sued, and having to hire a lawyer.

August 27 2012 at 7:02 PM Report abuse rate up rate down Reply
tenyrsafter1

The model of a good insurance company is to make 70% profit, including the growth of the company. Please the stock holders you understand !... Do you really think they will not turn this information to their advantage, think again...When Elsie the cow deposits one of her pie's on the surface of the moon is when I will trust the insurance company's to give us a fair shake.

August 27 2012 at 6:15 PM Report abuse rate up rate down Reply
vlady1000

Just get PL/PD coverage to really save money. I will take the same risk/reward wager as an insurance company takes, especially when they have bad driver costs, overhead, profit, etc.built into that wager. All that goes back into your pocket by keeping insurance coverage to a minium.

August 27 2012 at 5:56 PM Report abuse rate up rate down Reply
dennisfps

How often a driver brakes?

I'd be in deep doo-doo as I have a habit of riding the brake.

August 27 2012 at 5:22 PM Report abuse rate up rate down Reply