“Pay how you drive” puts the brake on insurance premiums

No more driving unaccompanied – with “pay how you drive”, you take your insurer with you. Source: iStock / Geber86

The“pay how you drive” insurance scheme works on the basis of rewarding good driving.

New developments in technology are ushering in the arrival of new insurance products on the market. One such product is “pay how you drive” – essentially an extension of “pay as you drive” and crash recorders. Here we answer the five most common questions.

What is pay how you drive?

“Pay how you drive” (PHYD) is a type of car insurance scheme. Under such a scheme, your premium is calculated according to your driving style. This is done by means of a tracking device, which records the driving behaviour of the policyholder. It documents information like mileage and driving style (e.g. speed) and relays it to the insurance company for analysis. If the driving style is considered “good”, the policyholder is granted a premium reduction. However, a discount system means that “bad” driving is not punished. In most cases, drivers receive a lower rate simply for using the tracking device.

Important: A basic premium, which varies from insurer to insurer, is defined as the starting point for calculating how much you will pay. It’s therefore a good idea to compare premiums.

How does it differ from pay as you drive?

A previous, similar scheme – “pay as you drive” (PAYD) – simply records the distance driven. With PHYD, other factors are taken into consideration. Depending on the product, the device might record how you accelerate, take corners and brake, as well as your speed and how long you drive without taking a break.

How does it differ from the use of crash recorders?

Unlike crash recorders, PHYD devices record all data. The use of telematics means that this data can even by transmitted to the insurer in real time. Crash recorders, on the other hand, only store data in the event of an accident – the information from the recorder is then reviewed manually by the insurance company after the accident. The main purpose of a crash recorder is to identify how an accident was caused and who is to blame.

What are the advantages of pay how you drive?

PHYD has two main benefits:

  • Lower premiums: You can usually get a lower premium just by installing the required tracking device.
  • Improved driving: Depending on the product, you can view your own driving style using an app, and use this information to refine your driving.

What are the disadvantages of pay how you drive?

The price of PHYD and the forwarding of personal driving information to the insurance company are two drawbacks. However, given current levels of data transparency, the latter is not particularly unusual these days. Many car manufacturers, for instance, already know quite a bit about the driving habits of their car owners. The on-board computer records driving data, often even the location.