What Is Telematics and Usage-Based Car Insurance?

Telematics car insurance is also known as usage-based car insurance. In the U.S., insurers and regulators usually use the term usage-based insurance (UBI) or usage-based auto insurance. Globally, the same model is more often called telematics car insurance or telematics auto insurance. 

However, both rely on the same idea. Driving data is collected through technology and used to price insurance more accurately. To do so, telematics technology tracks real driving behavior, such as how often you drive, how far you drive, and how safely you drive. That data may come from a smartphone app, an OBD-II plug-in device, or built-in vehicle systems. 

With usage-based car insurance, insurers use this data to adjust car insurance premiums. Safe or low-mileage drivers may pay less. Riskier driving can raise costs.  In simple terms, UBI replaces broad averages with real-world driving data. That shift is why telematics and usage-based auto insurance continue to grow across the U.S., including in Michigan.

Telematics and Usage-Based Auto Insurance Trends 

Telematics is moving from an optional add-on to mainstream auto insurance pricing. Globally, a large consumer survey found that 14.4% of personal motor policies now include telematics, and 20.9% use pay-as-you-go coverage. 

At the same time, the market itself is expanding quickly. According to Fortune Business Insights, the global automotive usage-based insurance market was valued at $57.86 billion in 2023 and is projected to grow from $66.80 billion in 2024 to $248.94 billion by 2032, reflecting strong long-term adoption. North America accounted for nearly 46% of the global market, driven by widespread telematics use and insurer participation. 

Commercial insurers are adopting telematics even faster. Insurance Business Magazine reports that 82% of commercial insurers now use telematics, up from 65% in 2023. About 60% have built dedicated telematics teams, with loss control leading those efforts. 

In the U.S., regulators treat usage-based insurance as a legitimate rating model, not a novelty. The National Association of Insurance Commissioners (NAIC) explains that insurers use telematics to monitor driving behavior and align insurance rates more closely with real risk. 

Even so, adoption remains cautious. Many drivers like the idea of discounts. However, privacy concerns and fear of rate increases still slow enrollment. Because of that, usage-based insurance continues to grow steadily rather than all at once. 

Michigan drivers are also slowly accepting this trend. Telematics programs are already available through major and regional insurers. As a result, the real decision is not access. It is whether the model fits how you drive.

Types of Telematics or Usage-Based Auto Insurance

Not all usage-based car insurance works the same way. Insurers use different telematics models depending on what risk they want to measure.  In practice, most usage-based insurance programs fall into three core categories.

Pay-As-You-Drive (PAYD)

• PAYD prices insurance mainly based on how much you drive. 
• Fewer miles usually mean lower risk. Therefore, premiums may be lower. 
• Insurers track mileage through telematics devices, a smartphone app, or built-in vehicle systems. 
• Driving behavior matters less here. Distance matters most. 
• This model often fits low-mileage drivers, remote workers, and retirees.

Pay-How-You-Drive (PHYD)

• PHYD focuses on driving behavior, not just mileage. 
• Speed, braking, acceleration, cornering, and time of day all play a role. 
• Safer driving habits can directly lower car insurance rates. 
• Risky behavior, on the flip side, may reduce discounts or increase premiums, depending on the insurer.

Pay-Per-Mile (PPM)

• Pay-per-mile insurance blends a base rate with a per-mile charge. 
• It is often grouped under usage-based auto insurance, but it is more mileage-driven than behavior-driven. 
• Simply, you pay for how often you’re on the road.

Other Usage-Based Car Insurance Types Available

• Some insurers offer variations built on the same telematics foundation: 
• Black box insurance, using a physical device installed in the vehicle 
• Smartphone telematics, relying entirely on mobile apps 
• OEM-based programs, where data comes directly from connected cars 
• Fleet telematics insurance, used by businesses to manage risk and lower fleet costs

How Telematics or UBI Work in Auto Insurance

Telematics car insurance works in a very straightforward way. It observes how a vehicle is actually used. So, the process is simple, even though the technology behind it is advanced. 

First, you enroll in a usage-based insurance program through your insurer. Then, driving data is collected over a set period, often a few months.

Here’s how the process usually works: 

• You drive as you normally would 
• Telematics technology records mileage and driving behavior 
• The insurer analyzes that data 
• Your car insurance premiums are adjusted at renewal

The goal is to match price with real risk, not assumptions. That’s how you can enjoy the exact rate you deserve as a driver. 

If you’re wondering whether the data collected from your driving patterns is truly accurate, rest assured. Insurers rely on reliable methods to capture this information, so you’re on the safe side.

• OBD-II plug-in devices connected to your car 
• Smartphone telematics apps that track trips automatically 
• Built-in vehicle systems in connected cars

According to the NAIC, these tools measure factors like speed, braking, acceleration, and time of day driving. Please note that your insurers will not record your personal content, such as calls or messages. 

Quick Note: Telematics or Usage-Based Insurance (UBI) isn’t a separate type of car insurance coverage like liability, collision, or comprehensive. Instead, it’s a pricing model that provides more personalized and accurate auto insurance costs based on your driving behavior.

Factors Affecting Your UBI Score

A UBI score reflects how your insurer views your driving risk. Although each usage-based insurance program scores drivers differently, most look at similar patterns. Here are the factors that matter most. 

• Miles driven: Driving less usually lowers risk. That’s why low mileage often helps your score. 
• Speed and speeding frequency: Driving above the speed limit raises accident risk and can reduce discounts. 
• Braking and acceleration: Smooth braking and gradual acceleration signal attentive driving. 
• Time of day you drive: Late-night driving is riskier, so frequent overnight trips can hurt your score. 
• Phone use while driving: Hands-on phone activity is strongly linked to accidents and is closely monitored. 
• Trip consistency: Predictable routes and steady habits are easier to score favorably.

Usage-Based Car Insurance Pros and Cons

Usage-based car insurance doesn’t really have too many downsides. In fact, it’s getting popular among drivers. However, some may still find it difficult or face privacy concerns while sharing data related to personal driving behaviors. 

Below is a simple, side-by-side advantages and disadvantages of usage-based auto insurance.

What to Know Before Enrolling in a Usage-Based Insurance Program

Before joining a usage-based insurance program, it helps to pause and read the fine print. Telematics can lower costs. Still, it also comes with commitments. 

First, understand what data is collected. Most programs track: 

• Mileage 
• Speed 
• Braking 
• Driving Time of day 
• Phone use 

That said, tracking methods vary by insurer.

Next, confirm how long monitoring lasts. Some programs review driving for a few months. Others continue collecting data throughout the policy term. 

You should also ask whether your rate can increase. Some insurers allow discounts only. And others adjust car insurance premiums up or down based on results. 

Finally, review opt-out rules. Leaving early may remove earned discounts, and in some cases, it can reset your rate.

Who Benefits Most From Telematics Insurance?

Telematics insurance works best when a driver’s habits already line up with how insurers measure risk. It is less about perfection and more about consistency over time. 

Based on insurer program data and regulator guidance, these groups tend to benefit the most. 

• Low-mileage drivers: Driving fewer miles lowers exposure to accidents. This often leads to lower car insurance premiums, especially under mileage-focused programs. 
• Careful and defensive drivers: Smooth braking, steady speeds, and limited phone use usually result in stronger scores under usage-based auto insurance models. 
• Remote workers and retirees: Short, daytime trips and predictable driving patterns often work in favor of usage-based insurance pricing. 
• Newer or younger drivers with safe habits: Telematics allows good driving behavior to influence rates sooner, instead of relying only on limited driving history. Besides, young drivers face extremely high auto insurance rates due to the age factor. Telematics can help reduce premiums. 
• Michigan drivers with consistent routines: Predictable routes and lower annual mileage can help telematics reflect real risk rather than statewide averages.

Who Should Not Get Telematics or UBI Coverage

• Telematics or usage-based insurance isn’t a one-size-fits-all solution. Because the model is still evolving, some drivers may face challenges without seeing real savings. 
• Drivers with long or unavoidable daily commutes often struggle to benefit. Higher mileage increases exposure to risk, which can limit discounts under many usage-based insurance models.  
• Frequent late-night drivers may also see weaker results. Many programs treat overnight driving as a higher risk, regardless of fault, traffic conditions, or driving skill. 
• Drivers who spend most of their time in heavy congestion should be cautious. Stop-and-go traffic can trigger hard braking and rapid acceleration flags, even when driving defensively. 
• Privacy-focused drivers may want to avoid telematics altogether. If sharing location data, trip history, or phone-use activity feels uncomfortable, the trade-off may not be worth it. 
• Finally, drivers who prefer stable, predictable pricing may find UBI frustrating. Some programs allow car insurance premiums to move up or down based on driving data, which adds uncertainty. 
• In these cases, finding traditional affordable auto insurance could be the best option.

How Much Does Usage-Based Car Insurance Cost

Usage-based insurance (UBI) is not a separate coverage like liability or collision. It’s a pricing layer on a normal auto policy. So, the cost still depends on your car, location, coverage limits, and insurer. Then, telematics data can push your price down or up. 

Savings vary by program and driving. Many drivers get an upfront sign-up discount, and strong driving data can cut your premium meaningfully over time.  

Penny Gusner, a senior insurance analyst and writer for Forbes Advisor, has reported drivers typically save about 10% to 30% through the UBI program, depending on the insurer’s plan and your driving behavior. However, not everyone saves. Some drivers see smaller discounts, and some programs can remove savings if driving scores drop.

How Telematics/UBI Affects Auto Insurance Rates

Telematics auto insurance affects your rate by changing how risk is measured. Traditional pricing leans on history and broad averages. UBI adds current driving behavior and or mileage as ongoing rating inputs. 

That means your rate can move in either direction. The NAIC notes premiums may go up or down depending on what the data shows. 

In practice, insurers usually review data over a set period, often until renewal, then apply a discount, a smaller discount, or sometimes a surcharge. 

Consumer Reports’ 2024 survey found that only 14% of policyholders used telematics, with median savings of about $120 per year. While insurers advertise discounts as high as 40%, drivers can expect to save around 10%. But high-risk drivers should also be prepared to face expensive premiums during renewal.

Insurance Companies Offering Telematics or UBI Program

When shopping for insurance, you can ask whether the auto insurer offers a telematics or usage-based insurance program. Many U.S. carriers now include this option. 

Below are well-known insurers with active UBI programs in the U.S. market. 

• Allstate: App-based program focused on driving behavior and rewards 
• Progressive: App or plug-in options that can adjust rates up or down 
• State Farm: Telematics program that offers discounts without surcharges in many states 
• Nationwide: Program designed to provide discounts without increasing rates 
• GEICO: App-based monitoring with state-specific pricing rules 
• Travelers: App-based program with a defined monitoring period 
• USAA: Telematics option for eligible military members and families 

Availability, data collection methods, and rate impact vary by insurer and by state. For Michigan drivers especially, it’s important to review program terms carefully before enrolling. Telematics may change how pricing works, but coverage types remain the same.

How to Save Money with Usage-Based Insurance

If you enroll in a usage-based insurance program, a few small habits can make a big difference. These tips are based on how telematics auto insurance programs actually score drivers. 

• Drive fewer miles whenever possible, especially during the monitoring period 
• Avoid speeding, even briefly, since speed spikes hurt UBI scores 
• Brake smoothly and leave more following distance 
• Accelerate gradually instead of making quick starts 
• Limit late-night driving when you can 
• Avoid heavy rush-hour traffic if your schedule allows 
• Keep your phone untouched while driving 
• Review your driving feedback regularly in the app 
• Correct trips logged as a passenger if the program allows 
• Choose a low-driving period to enroll in the program

Is Usage-Based Insurance Worth It?

Usage-based insurance (UBI) can be worth it for some drivers, but it’s not automatic. It depends on your habits, comfort with data sharing, and what you want from your coverage. 

To decide whether it’s right for you or not, NAIC recommends asking yourself these questions: 

• Do you trust your insurer with your driving data and know how it will be used? 
• Will your driving behavior actually help your car insurance premiums, or are you willing to change how you drive for a discount? 
• What level of savings is reasonable given your mileage and habits? 
• What exactly will be monitored, and which device or app will collect the data? 
• Can you choose whether telematics data is used after an accident to settle a claim? 

If you have consistent, safe habits and low annual mileage, telematics often reflects that in your pricing. If your driving patterns are unpredictable or include frequent high-risk situations, the results may be mixed.

Usage-Based Car Insurance FAQs

How to compare car insurance quotes with telematics discounts?

Start with the same coverage limits and deductibles. Then compare the base premium, sign-up discount, maximum possible savings, and whether rates can increase under the telematics program.

How is usage-based insurance different from other auto policies?

Usage-based insurance is not a different policy. It’s a pricing model layered onto standard auto insurance that adjusts rates using mileage and driving behavior data.

How does telematics reduce fleet insurance costs?

Telematics helps fleets monitor driver behavior, reduce accidents, improve routing, and lower claims frequency, which often leads to lower premiums and better risk management.

What are the benefits of usage-based insurance for low-mileage drivers?

Low-mile drivers often pay less because fewer miles mean lower accident risk, especially under mileage-focused UBI programs.

Should Michigan drivers get usage-based car insurance? 

It can make sense for Michigan drivers with low mileage, daytime driving, and consistent habits. Drivers with long commutes or heavy traffic exposure may see limited savings.

What are the downsides of usage-based insurance?

Rates may increase with some insurers, discounts are not guaranteed, and privacy concerns exist because driving data and location information are collected.

What should you do to get telematics discounts?

Drive fewer miles, avoid speeding and hard braking, limit late-night trips, avoid phone use while driving, and review app feedback regularly.

How is your driving data processed and retained? 

Insurers analyze telematics data to score risk and apply discounts. Retention periods and data-sharing rules vary by company, so reviewing program terms is important.

What kind of devices collect your driving information? 

Data is usually collected through smartphone apps, OBD-II plug-in devices, or built-in connected-car systems, depending on the insurer and vehicle.