Due to the significant rise in auto insurance prices, many Americans may be inclined to give up some privacy in exchange for lower rates, which could lead to a surge in the adoption of usage-based insurance (UBI) by 2025, as indicated by analytics firm JD Power.

UBI determines rates through real-time monitoring of driving behavior, differing from conventional insurance costs that rely on historical driving data. This approach utilizes telematics technology, frequently through mobile devices, to analyze driving habits and provide discounts for safe driving practices and lower annual mileage.

Tesla drivers already have UBI policies since that is the only insurance option available from the electric car manufacturer. However, Stephen Crewdson, a senior director at JD Power, noted that UBI is becoming more popular among various vehicle owners.

“On average, premiums have risen by 30-40% over the past three years, prompting consumers to seek ways to cut costs on their auto insurance,” Crewdson mentioned.

What savings can UBI provide customers?

Crewsdon indicated that customers could typically expect a savings of about 10% compared to traditional auto insurance policies.

“For some individuals, the costs can reach thousands annually when covering multiple drivers,” he explained. “Thus, this could translate into significant savings.”

What does UBI monitor?

According to the National Association of Insurance Commissioners, UBI may track various driving behaviors, including:

• distance traveled
• time of day
• route taken
• accelerating quickly
• braking abruptly
• sharp turns
• use of mobile devices
• deployment of airbags

How many individuals are transitioning to UBI?

In 2020, 16% of those shopping for auto insurance were offered UBI, with 12% opting to enroll. By 2024, while 15% of buyers received UBI offers, a larger portion—19%—decided to sign up.

Although insurance companies are now offering UBI less frequently than in 2020, the increasing enrollment rate indicates that consumer interest is on the rise, according to Crewdson.

While the allure of savings attracts consumers to UBI, the uptick in engagement also implies that more individuals are becoming comfortable with data sharing. “People are tracked through their phones and apps anyway, so they might think, ‘Why not gain some discounts from it?’” he added.

Is UBI right for you?

If you are a safe driver, tend to drive fewer miles than average, and are okay with sharing your data, UBI could be a suitable option for you.

Crewsdon also noted that UBI can encourage safer driving habits. “In a 2024 study, 65% of respondents reported receiving driving tips, and 44% acknowledged modifying their driving practices. So, improving driving safety is an added advantage.”

On average, customer satisfaction among new UBI users is 64 points greater (on a 1,000-point scale) compared to those who opt-out of UBI programs, according to JD Power.

“The increase in customer satisfaction from UBI, combined with a rise in price-driven shopping and switching, alongside ongoing insurer interest in attracting new clientele, has created favorable conditions for a notable rise in UBI adoption,” stated the analytics firm in their report.

Medora Lee is a reporter specializing in finance, markets, and personal finance.