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Pay-as-you-drive may be the future of car insurance and a way to save money. That's clearly what insurers are suggesting -- but is it the best coverage for you?

If you're like most drivers, maybe not.

If you drive a lot, at the wrong times of day, or are reluctant to give up the left lane, many other car-insurance discounts are available. Not all low-mileage discounts require a pay-as-you-drive (PAYD) device, for example. But few offer the savings potential that maxed-out PAYD plans do.

The gizmos used by car-insurance companies promise discounts of as much as 50%. They come in two types:

  • An insurer-supplied device that plugs into your car's onboard diagnostics (OBDII) port and typically reports your car's mileage, speed, braking and hours of operation.
  • A car-manufacturer-designed telematics system, such as OnStar or Sync, that typically reports only mileage.

You'll find a roundup of current PAYD offerings at "Pay-as-you-drive car insurance: Who offers what."

When your insurer rides shotgun

With all PAYD plans, the easiest path to a huge discount is very low annual mileage. In some cases, the best rates go to customers who drive less than 2,500 miles a year.

Some programs may require that you address how you drive, not just how much. Even Progressive, a pioneer in the PAYD market with its much-hyped Snapshot device, says people who drive aggressively -- and a lot -- may want to pass.

Many customers of PAYD programs say braking measurements are the biggest surprise. William Parsons, a New Yorker who ended up with about a 15% discount after signing up for Snapshot, wonders if his premium cut would have been bigger if he hadn't been penalized for hard braking during his test period.

"It seemed a little touchy to me, the way they registered braking pressures," he says. "I'm a careful driver, so I didn't think I did much intense braking."

One program is aimed specifically at drivers who are turning over a new leaf. Safeco's Rewind uses PAYD technology to monitor its customers who have racked up minor violations or at-fault accidents and would otherwise face increased rates.

Will a driving score become the new credit score?

Privacy issues are at the top of the list for the Electronic Privacy Information Center, which worries how the gathered details ultimately could be used.

Sharon Goott Nissim, EPIC's consumer privacy counsel, says it's very early in the game -- and consumers just don't know all the rules yet. The risk, she warns, is that information could wind up being used for marketing or in the hands of law enforcement.

"They could be turning the data into your (driving) score and then discarding the raw data," Goott Nissim says. "But they could also be disclosing the data to commercial partners, particularly locational data, which is very valuable to advertisers. Also, law enforcement may seek out data -- and insurance companies may be willing" to give it.

Anita Ramasastry, a professor at the University of Washington School of Law who has studied PAYD models, cautions that the information sharing, if not controlled, could even reach the workplace. What if insurers provided employers with your profile? Would they be less willing to hire someone with aggressive driving habits?

"The fact that someone drives a lot late at night, for example, may be interpreted by an employer as a sign that he is not going to stay awake or alert at work, or that he is a late-night partygoer," she says.

Looking down the road

Insurers insist they protect their customers, and they prominently point to privacy policies on their websites.

Progressive offers this assurance: "We won't share Snapshot data with a third party unless it's required to service your insurance policy, prevent fraud, perform research or comply with the law. We also won't use Snapshot data to resolve a claim unless you or the registered vehicle owner gives us permission."

Ramasastry carefully distinguishes current practice from what technology may make feasible in the future.

"While Progressive itself does not track our whereabouts via GPS or track whether we speed," she says, "one can surely imagine that other insurers could develop and implement tools that monitor those habits, as well as others -- such as, for example, whether a driver texts and drives, or talks on a cellphone and drives."

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