Are safe driving discounts worth it?

With car insurance rates soaring in recent years, drivers are looking for ways to save on their premiums. Many insurers offer safe driving discounts that incorporate telematics programs, also known as usage-based insurance (UBI), to record and evaluate your habits behind the wheel.

If the data shows you've been a responsible motorist, you could see your rate drop by as much as 40%.

While the discounts are appealing, some companies will raise your premiums if the results show you're not considered a safe driver. Additionally, privacy advocates worry about where all that information could wind up. 

"It comes down to consent," said Hayley Tsukayama, associate director of legislative activism at the Electronic Frontier Foundation, a digital privacy nonprofit. "People get upset when their data is used in ways they don't expect. Maybe you are willing to make some of those trade-offs — it's all about clear communication."

If you're thinking about a safe driving discount — or you've already signed up for one — find out how they work, how much you could save and what the risks are.

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Discounts for good driving are nothing new: Insurance companies often lower rates for drivers who take a defensive driving class or who haven't had an accident in several years. But the advent of wireless technology has meant insurers can now collect, transmit and evaluate day-to-day driving behavior in real-time.

Signing up for a safe driving discount usually means installing a plug-in device or downloading an app on your mobile phone. (Some insurers offer either option or use data from both.)

Tracker: These widgets, known as telematics devices, are usually plugged into a port beneath the steering wheel and use your car's sensors and diagnostic systems to track your performance.

Smartphone app: Instead of onboard diagnostics, data about your driving speed, hard braking and other behaviors is captured by your phone's internal GPS and sensors. The apps typically analyze movements — like how your phone rotates when you enter your vehicle — to determine if you're driving.

The system tracks metrics relating to your performance behind the wheel. The specifics vary, but they typically include:

• Time of day
• Mileage  
• Location and route
• Speed
• Acceleration, braking and turning  
• Phone usage while driving

Since each insurer collects, analyzes and weighs data differently, there is no one approach to getting the most out of a UBI plan. According to Progressive, limiting hard braking and acceleration, avoiding handheld phone activity and not driving between midnight and 4 a.m. will help you optimize its Snapshot program.

These are some of the top insurers offering discounts if you allow them to monitor your driving habits. Each state has different rules about how data can be used, however, and some restrict or prohibit UBI programs.

Allstate: Up to 25% off with Drivewise
American Family: Up to 20% off with DriveMyWay
Farmers: Up to 35% off with Signal
Geico: Up to 25% off with DriveEasy
Nationwide: Up to 40% off with SmartRide
Progressive: Customers who earn a discount with Snapshot save an average of $231 a year
State Farm: Up to 30% off with Drive Safe & Save
Travelers: Up to 30% off with IntelliDrive
USAA: Up to 30% off with SafePilot

Nationwide, State Farm and USAA all told CNBC Select that premiums are not raised as a result of telematics data. Allstate, American Family, Farmers and Travelers, however, all indicated there could be a rate increase if the app rated you as an unsafe driver.

While Geico and Progressive did not respond to requests for comment, both companies' websites indicate rate increases are possible. According to Progressive, 20% of drivers who enroll in its Snapshot program see their insurance premiums increase.

Depending on your insurer, telematics information can be shared or used for other purposes, including marketing. In addition, a company that doesn't share or sell your data may still be required by law to comply with a subpoena, court order or law enforcement request.

It can be difficult to decipher an insurer's privacy policy to know exactly what is being done with your information.

"Unfortunately, it does require a little work — they don't make it easy," said Tsukayama. "Obviously, the insurance companies are incentivized to get people to sign up for these programs. So, [those agreements] are not always easy to decipher." 

Nationwide, State Farm and USAA told CNBC Select that driving data is not shared or sold with third parties.

Farmers Auto Insurance directed CNBC Select to its privacy notice, which indicates customer data from its Signal app may be shared with third parties, including "companies that perform marketing services on our behalf or to other financial institutions with which we have joint marketing agreements."

According to Progressive's privacy statement, personally identifiable data from its Snapshot app may be shared with other companies "to service your insurance policy, detect or prevent fraud, perform research, market our or our affiliates' products and services to you or as required or permitted by law." (Users can limit some of the marketing of Progressive and affiliate products and services, however.)

"Make sure you're comfortable if your insurer is reserving the right to sell your information to data brokers," Tsukayama said. "Maybe you're willing to make some of those trade-offs. It's all about clear communication."

While your car's or phone's sensors can detect driving behavior, they're not infallible: They may register you were the driver when you were in the passenger seat or detect distracted driving when you're not even behind the wheel.

Only 38% of customers who use safe-driving apps say the data collected is always accurate, according to J.D. Power. Most programs allow users to request corrections, but the process is time-consuming and the options are limited.  Travelers Insurance, for example, gives Intellidrive users 10 days to update that they were a passenger, not a driver, on a given trip. 

In most cases, policyholders need to enroll in the safe driving discount within the first few weeks of their policy going into effect. The insurer then tracks their driving for the duration of their term (usually six or 12 months) and then applies any discount at the next policy renewal.

In some cases, you may need to complete a certain number of trips within that time frame to qualify.

The full discount usually isn't available until you renew, but most companies offer a smaller discount just for signing up: Nationwide, for example, takes 10% off your rate when you enroll in its SmartRide program. At renewal, the overall discount can increase to as much as 40%.

If you're a responsible motorist, safe driver apps are a great way to lower your rates. But, depending on your insurer, you could risk a rate increase.

You also need to decide if it's worth your insurance company having access to that much data.

"If there are reasons that you might want to keep that information more [private], you might say, 'Oh no, this is not for me,'" Tsukayama said. "The top thing is knowing what you're getting into. Try to understand what they collect and use that to evaluate how comfortable you are with it."

Whatever you decide, Tsukayam said, it should be an informed decision.

"At the end of the day, it's your information," she said. "It's not theirs. They may be collecting it and holding it, but it's about you."

Pros

• Lower rates.
• Improved driving habits

Cons

• Your rates could increase.
• Your data may be sold.

If using a safe driving app doesn't appeal to you, there are other ways to lower your rates.

Shop for other discounts

Using safe driving apps or devices isn't the only way to save on car insurance: Many insurers offer discounts for bundling auto and home insurance, being a student with good grades, owning a home or going paperless.

Increase your deductible

Insurance Information Institute increasing your deductible by $300 could reduce the cost of full coverage insurance by up to 30% annually. Make sure you have the funds to pay out of pocket if you get into an accident.

Improve your credit

Most states factor your credit history into your car insurance premiums. You can boost your credit by paying down debts, keeping your credit utilization low, and monitoring your credit report with a service like CreditWise® from Capital One.

At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and experience. For this story, we interviewed Hayley Tsukayama, associate director of legislative activism at the Electronic Frontier Foundation.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every car insurance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of insurance products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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