Drive Less? Pay Less for Insurance

If you have a car that spends most of its time parked in a garage, a couple of insurers have a deal for you: auto-insurance rates based on how much you drive, among other factors that suggest you present a lower-than-average risk.

The thinking behind the mileage-based discounts offered by Progressive Corp. and GMAC Insurance is that people who rarely drive are less likely to get into accidents and thus are profitable customers even if insurers offer a big discount.

"The idea is there are many people who drive fewer-than-average miles, and historically they have not been able to get a rate that benefited them," says Gary Kusumi, president and chief executive of GMAC Insurance, the insurance unit of GMAC Financial Services.

Insurers have long sought reliable mileage data for drivers, but the figures drivers report are notoriously unreliable, while technology-based solutions have proved complicated to implement. GMAC Insurance and Progressive are offering mileage discounts using onboard devices to measure miles, and in the case of Progressive, other driving habits.

Both pay-as-you-go plans offer drivers a chance to benefit from their minimalist driving habits while giving insurers a chance to price more accurately for the risk they take. While consumer advocates call it a generally benign arrangement, they suggest that, before signing up, drivers make sure they understand and feel comfortable with the information insurers are collecting.

The discount offered by GMAC Insurance, the 20th-largest property and casualty insurer in the U.S. by premiums written, is based on a partnership with General Motors Corp. subsidiary OnStar. It offers drivers discounts based on how many miles they drive, ranging from 54% off for those who drive less than 2,500 miles a year to a 14% discount for drivers who clock less than 15,000 miles annually.

To get the discount, which is available in 34 states, drivers must own a car manufactured by GM, GMAC's former parent, that is equipped with OnStar, a safety and navigation system installed in most new GM cars. The drivers must agree to have OnStar supply their insurer with a monthly odometer reading on which to base the discount.

Progressive's TripSense, available in Minnesota, Michigan and Oregon, requires customers to install a small device into their car's onboard diagnostic port, and then download the information to their home computer and send it off to Progressive at regular intervals. Progressive's discount for the program ranges from 5% to 25%, but Progressive spokeswoman Shannon Beczkiewicz says the company was working on a revised discount model.

The Mayfield Village, Ohio, company, the nation's third-largest auto insurer, declines to say how many customers have signed up for the TripSense program.