Auto Insurance

Should You Switch to Pay-Per-Mile Car Insurance?

A new style of pricing is hitting the car insurance market, and it may be a game changer for cheap and affordable car insurance. Pay-per-mile is a relatively new trend, and as it sounds, you pay car insurance based on how much you drive. In America, the company leading the charge is Metromile. The San Francisco company is offering car insurance based on how much you drive. So, should you make the switch? 

How Pay Per Mile Can Save You Money

Metromile believes that how much a person drives is a better indicator of their likelihood of getting into an accident. As such, over half of your rate from them can be based on how much you drive.  This isn’t entirely new, Progressive introduced the Snapshot back in 2013, a device you connect to your car, which is supposed to adjust your rates based on your driving habits. Other companies soon followed, namely The Hartford, State Farm, Allstate and Travelers all developed similar programs. Esurance also offers a pay per mile service, but only in Oregon. All of theses programs have a wireless device that hooks up to your car to measure how much you drive, and sometimes, how you drive. 

Where the programs differ is mostly in pricing. Metromile and Esurance are the only two “true” pay per mile services as they give you base rate and a rate per mile.  Each mile usually costs a few cents. So if you drive 200 miles per month at a rate of 5 cents per mile, you would be charged $10. The base rate, which is consistent every month, is usually anywhere from $20 and up, depending on typical insurance factors.

The other companies and their programs are a bit less obvious in how exactly fewer miles translates to a smaller rate. They as a whole still price premiums based on a risk pool, the traditional way of pricing car insurance. You get a discount after they analyze the data from your device, and deem you a safe or infrequent driver. Some of the programs make you return their device after a certain time, and your discount will be reflected on your next policy renewal. 

Drivers Who Should Switch to a Pay per Mile Service 

Those who will benefit the most from pay-to-drive or pay-per-mile are those who drive less than the national average of 12,000 miles per year. Even at a few cents per mile, anything above 12,000 plus the base rate will make the service particularly expensive. If you use your car minimally however, going with a pay per mile service can save you a lot of money.  A driver with a clean record, can get full coverage car insurance for less than $1,000 with a low monthly mileage count at Metromile or Esurance. With the other programs, you really need to drive less than 7,500 miles to see any noticeable discount in your rates. Although a few of the programs like The Hartford's, State Farm's and Traveler's give you an automatic 5% discount when you sign up. They all boast potential savings of up to 30%, but it appears uncommon for discounts to surpass even 20%. 

What You Should Consider

For one, if you underestimate your driving habits, you may actually end up paying more. Customers of the Snapshot for example have claimed their rates actually went up due to bad driving habits. So if you break hard or drive in the middle of the night often you should avoid programs like the Snapshot, Drivewise and TrueLane. While Metromile won’t track your driving habits, it does also have some considerable drawbacks. For one, it operates in seven states (CA,IL,NJ,OR,PA,WA,VA). Customers of Metromile have also  complained of a slow and inefficient claims process, despite it being available 24/7. This follows the trend of companies which try to have better pricing, but poorer customer service. 

Final Thoughts

All and all, using a pay-per-mile car insurance service can end up saving you a good deal, but only if you are an infrequent driver. If your driving habits aren't great either, you should avoid programs which track them, and can end up raising your rates more. If you feel you pay way too much for the amount of drive, see if your company has a discount or program. If they don't, you can see if another company's discount will end up being cheaper than your current rate. Metromile's and Esurance's pay-per-mile programs are sure to expand to other states in the near future as well. 

Craig Casazza

Craig is a former research analyst at ValuePenguin covering property and casualty insurance, including auto, homeowners, renters and motorcycle insurance.