Last Updated: 9/1/2026 
 
Issue: Usage-Based Insurance (UBI) is a type of auto insurance that tracks mileage and driving behaviors. UBI can be powered by in-vehicle telecommunication devices, such as connected boxes and on-board diagnostics (OBD) dongles, connected cars (e.g. built-in smart hubs or infotainment systems), and mobile applications. The basic idea of UBI is that a driver's behavior is monitored directly while the person drives, allowing insurers to more closely align driving behaviors with premium rates. 

Telematics devices measure numerous elements of interest to underwriters, including miles driven, time of day, where the vehicle is driven (Global Positioning System or GPS), rapid acceleration, hard braking, hard cornering, and air bag deployment. The level of data collected generally reflects the type of telematics technology employed and a policyholder’s willingness to share personal data. The insurance company then assesses the data and charges insurance premiums accordingly. For example, a driver who drives long distances at high speeds will be charged a higher rate than a driver who drives short distances at slower speeds.  

The first UBI programs began to surface in the U.S. in the late 1990s, when Progressive Insurance Company and General Motors Assurance Company (GMAC) began to offer mileage-linked discounts through combined GPS technology and cellular systems that tracked miles driven. These discounts are often combined with ancillary benefits like roadside assistance and vehicle theft recovery. Recent accelerations in technology have increased the effectiveness and cost of using telematics, enabling insurers to capture not just how many miles people drive, but how and when they drive too. The result has been the growth of several UBI variations, including Pay-As-You-Drive (PAYD), Pay-How-You-Drive (PHYD), Pay-As-You-Go, and Distance-Based Insurance. 

Pricing of UBI: The pricing scheme for UBI deviates greatly from that of traditional auto insurance. Traditional auto insurance relies on actuarial studies of aggregated historical data to produce rating factors that include driving record, credit-based insurance score, personal characteristics (age, gender, and marital status), vehicle type, garage location, vehicle use, previous claims, liability limits, and deductibles. Premium discounts on traditional auto insurance are usually limited to the bundling of insurance on multiple vehicles or types of insurance, insurance with the same carrier, protection devices (like airbags), driving courses, and home-to-work mileage. 

Policyholders tend to think of traditional auto insurance as a fixed cost, assessed annually and usually paid for in lump sums on an annual, semi-annual, or quarterly basis. However, studies show that there is a strong correlation between claim and loss costs and mileage driven, particularly within existing price rating factors (such as class and territory). For this reason, many UBI programs seek to convert the fixed costs associated with mileage driven into variable costs that can be used in conjunction with other rating factors in the premium calculation. UBI has the advantage of utilizing individual and current driving behaviors, rather than relying on aggregated statistics and driving records that are based on past trends and events, making premium pricing more individualized and precise. 

UBI programs offer many advantages to insurers, consumers and society. Linking insurance premiums more closely to actual individual vehicle or fleet performance allows insurers to more accurately and precisely price premiums. This increases affordability for lower-risk drivers and gives consumers the ability to control their premium costs by incentivizing them to reduce miles driven and adopt safer driving habits.  

Insurers use telematics to estimate accident damages and reduce fraud through the analysis of driving data from the time of an accident, such as hard braking, speed, and time. Additionally, the ancillary safety benefits offered in conjunction with many telematics-based UBI programs also help to lower accident and vehicle theft related costs by improving accident response time, allowing for tracking/recovery of stolen vehicles, and monitoring driver safety.  

While UBI programs offer numerous benefits, they also present challenges. The practice of tracking mileage and behavior information in UBI programs has raised privacy concerns. As a result, some states have enacted legislation requiring disclosure of tracking practices and devices and limiting the data they collect.  

Implementing a UBI program, particularly one that utilizes telematics, can be costly and resource intensive to insurers. Additionally, UBI is an emerging area and there remains uncertainty around the selection and interpretation of driving data and its integration into insurer price structures to maintain profitability. Insurers must also meet regulatory requirements within the states that they operate. Many states require insurers to obtain approval for the use of new rating plans. Rate filings usually must include statistical data that supports the proposed new rating structure. Other requirements that could prevent certain UBI programs include the need for continuous insurance coverage, upfront statement of premium charge, set expiration date, and guaranteed renewability. 

Status: Usage-based insurance is becoming increasingly more common and many auto insurers are offering it in addition to traditional insurance options. The direct to consumer model of insurance has also grown, which is a framework that eliminates brokers and agents and often leverages technology to engage with customers and personalize policies (some examples of these companies include Lemonade and Metromile). In 2015, the NAIC Center for Insurance Policy and Research (CIPR) published Usage-Based Insurance and Vehicle Telematics: Insurance Market and Regulatory Implications, which examines how technological advances in telematics are driving changes in the insurance market and the impacts on insurers, consumers, and state insurance regulators. 

In 2020, the Market Conduct Annual Statement Blanks (D) Working Group added a question about the use of telematics or UBI data to the Private-Passenger Auto Market Conduct Annual Statement Blanks Data Call, ensuring the NAIC continues to track use of this technology. Also in 2020, the Accounting Practices and Procedures (E) Task Force sought to develop “principles-based guidance” alongside industry for various “data-telematics policies.”  

In December 2022, the Big Data and Artificial Intelligence (H) Working Group published the report Private Passenger Auto Artificial Intelligence/Machine Learning Survey Results. In this report, NAIC staff investigated the types of data being used by insurance companies in their AI/ML models, analyzed how that data is being used, and identified potential inaccuracies in the data. The report indicates various ways that insurers have reported utilizing telematics to mitigate and manage risk.