All About Usage-Based Auto Insurance

Usage-based auto insurance is a type of insurance that uses a special rating system to determine consumers' auto insurance rates. The Progressive Casualty Insurance Company, a subsidiary of The Progressive Corporation, created the system known as "Autograph" more than 10 years ago. Rates are determined by how much, when, and where the vehicle is driven. This means, the less you drive, the less you pay. Usage-based auto insurance is considered the first-ever auto insurance product that gives consumers control over how much they pay for auto insurance.

Here's how the system works. The insurance company will install a GPS in the vehicle. Using a combination of GPS and cellular technology, the system reports information back to the insurance company. Each month, the consumer will receive a bill based on vehicle usage. The system has been tested and approved in Texas since 1998, and in 2000 The U.S. Patent Office awarded Progressive a second patent on the Autograph system. Since then, thousands of U.S. drivers have opted for the usage-based system over traditional insurance and the entire state of California might soon be onboard as well. California is currently negotiating a proposition that would allow several options for reporting mileage. One option is electronic monitoring. If passed, the proposition would require insurance companies to base auto insurance rates on mileage, in addition to other specific factors.

It is estimated that usage-based auto insurance can save consumers an average of 25 percent compared to the rates they were paying using a traditional auto insurance product. Consumers that live close to home or have a second or third car that doesn't get much use average around 50 percent in savings on their yearly auto insurance premium. So far, usage-based auto insurance is available in the states of Alabama, Kentucky, Louisiana, Michigan, Minnesota, Maryland, New Jersey, and Oregon.