Usage-based insurance (UBI) has been around for a while – it began with Pay-As-You-Drive programs that gave drivers discounts on their insurance premiums for driving under a set number of miles. These soon developed into Pay-How-You-Drive programs, pioneered by Progressive, which track your driving habits and give you discounts for ‘safe’ driving.
In the traditional system, a consumer calls an insurance company, provide some basic information, and get a quote for auto insurance based on type of car, age, gender, marital status, location, driving history, and credit history of the customer. These attributes act as proxies for your auto risk, and the riskier you are the more likely you are to file a claim. These attributes allow an insurance firm to stack you up against the rest of population and see where you are likely to fall in terms of risk. They are playing a guessing game based on averages.