The Rise of Usage-Based Car Insurance Policies

Are you a safe driver who winces every month when it’s time to pay your car insurance premium? It can feel wildly unfair to have to pay for coverage you rarely (if ever) have to use, leading many drivers to question the traditional approach to car insurance.

That’s where usage-based car insurance (UBI) comes into play. In recent years, a growing number of insurance companies have rolled out this optional program to reward drivers for their safe driving practices. But how do these plans actually work? Here’s a brief explanation of what usage-based car insurance is and how it can help Alabama drivers protect their safety and their wallets when hitting the open road.

What is usage-based car insurance (UBI)?

Usage-based car insurance is a type of auto insurance policy that tailors policyholders’ premiums in accordance with their driving habits. Rather than basing premiums on standard data like driver age, vehicle type, and geographic location, UBI policies factor in policyholders’ actual driving behaviors to calculate an appropriate rate.

Insurance companies utilize a variety of different data points to make determinations about UBI premiums. Some of the devices insurance companies commonly use to collect this data may include insurer-provided plug-in devices, smartphone apps, and certain built-in vehicle systems like OnStar. These devices collect information about the frequency and safety of the drivers’ trips and send it back to insurers so they can adjust premiums accordingly.

What kinds of data do insurers track?

Generally speaking, most UBI plans are either mileage-based or driving-based. You’ll commonly see these plans referred to as either “Pay-As-You-Drive” or “Pay-How-You-Drive,” depending on what information the insurer is actually collecting.

More specifically, Pay-As-You-Drive plans calculate premiums based on actual vehicle usage, while Pay-How-You-Drive plans calculate premiums based on a variety of data points, like:

• Speed
• Hard braking/acceleration
• Phone use while driving
• Time of day while driving
• Location data

If the data collected indicates that a driver usually drives the speed limit or rarely needs to suddenly brake or accelerate, it may indicate that they pose less of a risk to themselves or others, thus qualifying them for a lower premium.

This makes UBI policies incredibly beneficial to drivers who don’t have to travel that much or who generally engage in safe driving practices. If you pose less of a risk to your insurer, you can directly reap the benefits in the form of a lower insurance premium.

What are the benefits of UBI?

With over 4,000,000 licensed drivers in the state of Alabama, it would be pretty unfair to take a one-size-fits-all approach to calculating insurance premiums. While the average Alabama resident travels roughly 17,000 miles per year, plenty of our community members drive less frequently or travel shorter distances and come in well below that average.

Would it be fair to charge those drivers the same monthly premium as a driver who far exceeds the statewide average? Probably not. UBI coverage helps level the playing field by helping ensure drivers don’t pay for coverage they’re not actually likely to use.

Additionally, UBI policies incentivize drivers to engage in safer driving practices, which helps protect everyone on our local roadways. Not only do these plans reward drivers for their good habits, but the data collected by insurers can shed light on any areas drivers could improve upon. All in all, UBI plans benefit individual drivers and entire communities by encouraging safe driving practices and providing real-time data insights about roadway safety.

How popular is UBI?

According to recent data from JD Power, approximately 19% of drivers who were offered UBI policies enrolled in such a plan in 2024. This constituted a roughly 7% increase from 2020’s statistics, suggesting UBI policies are gaining traction among American consumers as car insurance premiums continue to skyrocket.

What’s more, roughly 44% of UBI drivers reported that they have made actionable changes to their driving habits as a result of their UBI enrollment. This indicates that usage-based insurance is doing exactly what it claims to do: make drivers more careful while saving them money. Across the board, UBI participants report roughly 10% savings on their insurance premiums, giving them more flexibility and control over their finances.

What happens to a UBI policy after an accident?

As you can probably imagine, premiums may increase after an accident – especially if you’re found at fault – depending on the insurer and the UBI program. This is part of what makes these policies a bit risky for some drivers. While the benefits are easy to understand in the context of safe and incident-free driving, a crash can turn a UBI policy on its head and lead to untenable rate increases.

In fact, your premium may rise even if you’re never involved in an accident solely based on certain dangerous driving behaviors. Furthermore, if you regularly drive after dark or face lengthy commutes throughout the week, any potential savings a UBI may have offered you could prove moot. This is why it’s important to carefully weigh whether a UBI policy is right for you prior to signing up.

Here’s one other important thing to keep in mind: By enrolling in a UBI policy, you’re essentially giving your insurance free rein to collect data about your driving behaviors. That means if you wind up involved in an accident, your insurer may possess driving data that could factor into claims evaluation, underwriting decisions, or future premium adjustments (consistent with policy terms and Alabama insurance regulations).

Alternatively, the other involved driver’s insurance company may seek access to your UBI data (for example, with your authorization or through subpoena/discovery if a lawsuit is filed). Because Alabama follows a fault-based system and applies contributory negligence in many negligence cases, evidence suggesting you were even partly at fault can significantly affect liability and your ability to recover damages.

When to contact an attorney

An experienced local car accident lawyer can help you challenge improper use of UBI data and work to minimize unnecessary premium increases. Notably, however, UBI data can also be leveraged in your defense by an attorney who understands how to build a strong case. For example, if the other party involved in your crash attempts to claim you were texting and driving at the time of the accident, your attorney may be able to request phone usage data from your insurer to disprove that claim.

If you have been involved in an accident in Alabama and are concerned about how it may impact your UBI premiums, it’s important to get in touch with an experienced lawyer as soon as possible. Swift action can help to ensure no important data is destroyed or “misplaced” by an insurer, so you have plenty of time to build a case and preserve your rights. With the right combination of data analysis, physical evidence, and personal testimony, your attorney can help you tell the full story of your accident and ensure you don’t incur an unnecessary rate increase.

Final thoughts

For safe drivers, usage-based car insurance can deliver significant savings on a monthly basis and encourage an ongoing investment in safe driving protocols. These plans not only benefit individual policyholders but can enhance safety for all local drivers by rewarding good behavior and incentivizing self-correction.

However, if you find yourself involved in a crash in Alabama and the other driver is attempting to blame you, it’s important that you take steps to protect yourself – particularly if you are enrolled in a UBI plan. At Martin & Helms, we understand how frustrating it can be to have your reputation and financial security compromised by baseless claims of fault for an accident. That’s why we’ve spent the last 20 years fighting for our clients’ futures.

If you need help facing down a claim of fault in an Alabama car accident, give us a call today or fill out our online contact form to schedule a consultation with a member of our team, and let’s discuss how your accident claim stands to impact your UBI policy and premiums.