How your smartphone can lower your car insurance rates

State Farm is sidestepping some of the actuarial science that goes into calculating your auto insurance premiums. Instead of determining through statistical analysis how much someone of your age, gender and residence typically drives, State Farm wants to go to the source: your car.
Ford(s f) and State Farm are working together to use Sync, the automaker’s connected-car platform, to feed driver-behavior information directly to the insurance company, which in turn would use that data to adjust the premiums it charges. The logic goes that if you drive less than the average long-distance commuter or drag racer, there’s less chance you will get in an accident and therefore should catch a break on your insurance rates.
The concept isn’t exactly new. Major insurers have all launched programs that allow safe drivers — or demonstrably unsafe drivers who claim to have changed their ways — to install devices in their cars to track their driving habits and thus qualify for discounts. Judging by the amount of times they slam on the brakes or exceed 85 mph, insurers can determine if these drivers are really as safe as they claim to be. And if Grandma is really only driving that candy-apple-red Hummer to and from church each Sunday, she can catch a break as well.
What’s unique about Ford and State Farm’s partnership is its implementation. Instead of sending out specialty GPS devices or M2M modules that have to be physically connected to the car’s onboard computer, Ford is shipping vehicle data directly from the dash to State Farm’s databases.

Sync is built on a “bring your own connectivity” premise, utilizing in-dash apps that link via Bluetooth to their counterparts within your phone and ultimately to the Internet over the driver’s 3G or 4G smartphone. For instance, Sync supports a dashboard version of Pandora(s P), which loads the service’s settings into its onboard entertainment system and allows drivers to take advantage of Sync’s voice command functions to switch between stations and songs.
For State Farm’s Drive Safe & Save program, a customer gives the insurer access to Ford’s Vehicle Health Report, a free service that draws key metrics directly from the car’s onboard computer. State Farm customers register their car’s vehicle identification number on State Farm’s website, which allows the company to periodically pull data from the report via Sync’s smartphone link.

An insurance policy tailored just for you

So far State Farm is tracking mileage, but the savings it’s offering are quite extensive. By simply registering for the program Ford owners get a 5 percent discount on their premiums. Additionally, at the end of each six-month coverage renewal cycle, Ford uses mileage data to adjust those rates. Those driving the national average of 1,000 miles per month qualify for a 10 percent discount. Customers who let their cars sit in their driveways most of the week can get as much as a 40 percent discount. The service is launching initially in Utah, but State Farm plans to expand it to other states.
Whether State Farm moves beyond simple odometer readings to tracking the full range of driver behavior remains to be seen. Insurers collecting detailed info on where we go, when we speed, and how often we blow stop signs raises some significant privacy concerns, but the programs are all entirely opt-in. And this kind of pay-as-you-drive model seems to be the direction the industry is heading.
It might not be too long before insurance companies start tailoring individual policies for drivers in real time. Imagine having a meter on your dash that tracks your accrued insurance premium as you drive. Like a taxi meter, the meter ticks up a few cents for every mile driven, but it might jump a few nickels every time you exceed the speed limit or slam on your brakes — or when it recognizes your 16-year-old son getting behind the driver’s seat.
Featured photo courtesy of Shutterstock user Andrei Shumskiy