What is Pay-As-You-Go

With the widespread adoption of Telematics Insurance devices and the proliferation of Telematics Phone Apps we could see a new player in the auto insurance space. Since its inception the auto insurance industry has run on a model where policies were underwritten based on large sets of historical data taken on prior clients. Consumers were stuck paying large total monthly insurance premiums based on the history of other drivers. There are a few new startups looking to disrupt the auto insurance as we know it and offer a fresh new look on the industry.

Similar to the mobile phone industry where millions of consumers have decide to choose a pay as you go service plan over more traditional fixed cost service plans, these new auto insurance startups want to offer consumers policies based on how well and when they drive. The most notable of this fresh new crop of startups is Cuvva and Just Miles. The main difference between the Cuvva and Just Miles companies is that Cuvva requires users to log into their app before driving their car and scheduling a journey which will insure the journey. Just Miles provides a more seamless approach although it might take some effort to get started. Just Miles requires consumers to equip their car with a built-in telematics device that can transmit statistics back to the company automatically. The companies state that they can save consumers more than $500 a year and say their target markets are those that drive less than 7,000 miles a year.

Will this new style of car insurance catch on? It’s hard to say, but I do know it means that there will be more competition in the car insurance space and the more traditional companies will need to adapt. Already many of the major car insurance companies have started to integrate more telematics devices with their consumers. This has led to major cost reductions in their total monthly premium. Many that drive low miles have reported that they have achieved substantial cost savings implementing insurers’ telematics devices. If this is true then the traditional insurance industry might offer policies low enough to dissuade consumers from switching to the new Pay-As-You-Go policies.

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