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How 'Risk Units' Could Transform Car Insurance RatesPutting a price tag on car insurance has always been something of a guessing game. Insurers can’t monitor your driving round-the-clock, so they set rates using predictive factors such as your age, gender and history of crashes and claims. But some insurers have drawn up plans for analyzing risk that may change how they charge for auto insurance.

What else insurers want to know about your trips

The route you take isn’t the only thing an insurer might consider. In its 2015 patent application for trip-based insurance, State Farm outlines a plan for tracking:

  • The time of day you typically drive.
  • Poor driving behavior, such as swerving or tailgating.
  • How often you stop during trips.
  • The typical passengers or cargo you carry.
  • The typical length of your trips.

» MORE: State Farm considers pricing car insurance by the trip

The end of traditional insurance premiums?

Buying car insurance in risk units would benefit drivers who can stretch their units over long periods. Low-mileage motorists, for example, would make ideal candidates, says Jared Smollik, actuarial director at Verisk Insurance Solutions, an analyst group.

Allstate also mentions the idea of a “pay-as-you-drive” system. With this model, instead of selling drivers risk units in advance, the company would add up the combined risk value of all your trips and charge you accordingly at the end of your billing cycle.

Another possibility, Smollik says, is that insurers will still sell traditional fixed-term policies and offer trip-based policies as an incentive for better driving. Insurers might offer discounts to customers who consistently drive responsibly and choose the safest routes, he says, without overtly penalizing other drivers who don’t fare as well.

When to expect trip-based insurance

Smollik acknowledges it probably will be years before our vehicles have the necessary technology to support this new insurance pricing system. But he points out that current usage-based programs already can give drivers a rough sense for what a trip-based policy might be like.

Several companies already offer such programs, which track behaviors such as speeding and hard braking and use the results to refine drivers’ insurance rates and give feedback on their driving habits. Customers who test the waters with usage-based insurance may realize its benefits, he says, and find it easier to transition to pricing based on trips or risk units.

Half of drivers already accept usage-based insurance when it’s offered, and many more are interested in how tracking devices might benefit them, according to a 2016 study by LexisNexis.

The bigger roadblock to implementing trip-based insurance is the challenge of collecting enough information about roads to accurately rate their risk level, as Allstate is considering. It’s a long and impractical process, Smollik says, because of the amount of observation needed.

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