Usage-Based Car Insurance: How Telematics Discounts Really Work

Nearly every major auto insurer now offers some version of “drive safe, save money” — a smartphone app or plug-in device that tracks your driving and turns good habits into a discount. Progressive calls it Snapshot. State Farm calls it Drive Safe & Save. Allstate calls it Drivewise. The pitch is simple. The mechanics, and the trade-offs, are not.

This guide covers how usage-based insurance (UBI) actually works, what it tracks, how much it really saves according to independent data (not marketing copy), and the privacy risk that turned into a real regulatory case in 2024–2026 — GM, OnStar, LexisNexis, and Verisk all faced government action over how driving data ended up in insurers’ hands.

Disclaimer: This article is educational and does not constitute personalized insurance advice. We are not licensed agents. Program terms, tracked factors, and discount structures vary by insurer and state — read your specific program’s privacy policy and terms before enrolling.

What Is Usage-Based Insurance?

Usage-based insurance (also called telematics insurance or “pay-how-you-drive” insurance) is a car insurance program that factors your actual driving behavior — not just static factors like age, ZIP code, or vehicle type — into your premium. According to Triple-I (the Insurance Information Institute’s research arm), telematics-based programs have gone from a niche offering to mainstream: 9 of the top 10 U.S. auto insurers now offer some form of it, and adoption has grown roughly 28% a year (compound annual growth rate) since 2018, with more than 21 million policyholders sharing telematics data with their insurer in 2024. ¹

There are two distinct models, and they get lumped together constantly:

1. Pay-per-mile insurance — a base rate plus a per-mile charge, so your bill scales with how much you actually drive.
2. Behavior-based telematics — a traditional premium structure, but with a discount (occasionally a surcharge) layered on top based on how you drive.

How Does Telematics Actually Track You?

Programs collect driving data through one of three channels:

• A smartphone app running in the background, using the phone’s GPS, accelerometer, and gyroscope. No hardware required, but it depends on you having the phone in the car and the app running.
• A plug-in device (OBD-II dongle) that connects to your car’s onboard diagnostics port and reads data directly from the vehicle.
• Built-in (embedded) telematics — hardware the automaker already installed, like GM’s OnStar or a connected infotainment system, which can report driving data without any app or dongle at all.

Across most programs, the specific behaviors tracked are similar:

• Hard braking and rapid acceleration
• Speed, and specifically speeding relative to the posted limit
• Cornering / sharp turns
• Phone handling or screen use while the vehicle is moving
• Time of day driven (late-night driving is scored as higher-risk)
• Total mileage

Pay-Per-Mile vs. Behavior-Based: Which Is Which?

Program names, tracked factors, and discount caps vary by state and change over time — confirm the current details directly with the carrier before enrolling.

How Much Can You Actually Save?

This is where marketing and reality diverge. Insurers frequently advertise headline numbers like “save up to 40%.” Triple-I confirms that maximum discounts across the industry commonly range from about 5% at enrollment up to roughly 40% for the safest drivers. ¹ But “up to” is doing a lot of work in that sentence — it’s the ceiling, not the average.

Consumer Reports surveyed its members who use telematics programs and found the real-world median annual savings was $120 — with savings skewing higher for specific groups: a median of $245 for policies that included a young driver, and $145 for drivers under 45. ² The Consumer Federation of America has separately noted that typical real-world savings tend to land closer to 10%, not the 40% ceiling used in advertising. ³

The gap between the advertised ceiling (up to 40%) and the median real-world outcome ($120/year — often under 10% of an annual premium) is the single most important thing to understand before you enroll. Most participants get a modest discount, not the headline number.

The Privacy Trade-Off: Where Your Driving Data Can End Up

Telematics data isn’t just used to calculate your own discount — in at least one large, well-documented case, it left the carrier’s hands entirely. Starting around 2020, General Motors’ OnStar Smart Driver program collected driving-behavior data (hard braking, acceleration, speed) and precise location data from millions of vehicles, then shared it with the data brokers LexisNexis Risk Solutions and Verisk Analytics, who packaged it into risk scores sold to auto insurers. ^{4 5}

The Federal Trade Commission brought an enforcement action in January 2025, alleging GM and OnStar collected and sold consumers’ precise geolocation and driving-behavior data without adequately notifying them or obtaining their affirmative consent. ⁴ California’s Attorney General separately announced a settlement — GM agreed to pay $12.75 million — over allegations it sold personal information belonging to hundreds of thousands of California drivers to LexisNexis and Verisk from 2020 through 2024 without proper consent. ⁵ Multiple consumers reported being unaware their driving data was being used to price their insurance until they were denied coverage or hit with a premium increase — and GM ended the OnStar Smart Driver program in 2024 after the backlash. ⁴

The practical takeaway: this specific case involved automaker-embedded telematics (OnStar), not an insurer’s own opt-in app — but it shows the data pipeline is real. Before enrolling in any telematics program, read the privacy policy for two things specifically: who else the data may be shared with, and whether you can fully opt out and delete your data later.

Can Usage-Based Insurance Raise Your Rate?

For most standard, insurer-run programs (Snapshot, Drive Safe & Save, Drivewise, and similar), the downside is usually structured as losing a discount, not paying a surcharge above your standard quoted rate — but this isn’t universal, and a few programs are explicitly structured with both an upside and a downside. Read your specific program’s terms carefully: the enrollment materials will disclose whether poor driving data can only shrink your discount, or can actively increase your premium above the baseline quote.

Who Should (and Shouldn’t) Enroll

Usage-based insurance tends to make sense for:

• Low-mileage drivers (retirees, remote workers, a rarely-driven second car) — pay-per-mile in particular
• Drivers who are confident in their habits: minimal hard braking, no speeding, little late-night driving, no phone handling
• Anyone whose current premium already reflects a rating factor they’d rather move away from — see our explainer on how credit score affects car insurance

It’s worth skipping, or at least reading closely, if:

• You do a meaningful amount of unavoidable late-night or shift-work driving, which several programs penalize regardless of how safely you drive
• You’re not comfortable with continuous location and behavior tracking, or with the possibility your data gets shared with third parties
• You’ve already secured a strong rate — our guide to how much car insurance you actually need is a better place to start if coverage adequacy, not the discount hunt, is your real question

Frequently Asked Questions

What is usage-based insurance? Usage-based insurance (UBI), also called telematics insurance, is a car insurance program that adjusts your premium based on data collected about how, how much, or when you actually drive — instead of relying only on traditional rating factors like age, location, and credit-based insurance score.

How does telematics track my driving? Most programs use one of three methods: a smartphone app that runs in the background using your phone’s sensors and GPS, a plug-in device that connects to your car’s OBD-II diagnostic port, or built-in telematics hardware already installed by the automaker (like GM’s OnStar). They commonly track hard braking, rapid acceleration, speed, cornering, phone handling, time of day driven, and total mileage.

Can usage-based insurance raise my rates instead of lowering them? Yes. Most programs are structured so poor driving data reduces or eliminates your discount rather than increasing your premium above what you’d otherwise pay, but a few programs — including some tied to GM’s OnStar Smart Driver data — have been linked to actual rate increases and even coverage denials, according to FTC and state attorney general actions. Read your specific program’s terms before enrolling.

What’s the difference between pay-per-mile and behavior-based telematics? Pay-per-mile insurance charges a base rate plus a per-mile fee, so your premium scales directly with how much you drive — it’s aimed at low-mileage drivers. Behavior-based programs keep a traditional premium structure but apply a discount (or surcharge) based on how safely you drive, regardless of mileage.

Is my driving data sold to third parties? It can be. In 2024, GM ended its OnStar Smart Driver program after reporting confirmed it had shared millions of drivers’ precise location and driving-behavior data with consumer data brokers LexisNexis Risk Solutions and Verisk Analytics, who resold risk profiles to insurers. The FTC and California’s Attorney General both took enforcement action over the lack of clear consumer consent.

How long does a telematics trial period last? It varies by carrier, but most behavior-based programs run for a defined policy term — commonly around six months — before the final discount or surcharge locks in at your next renewal.

Is usage-based insurance worth it? It’s most worth it for genuinely low-mileage or consistently cautious drivers. Consumer Reports found the median annual savings among all telematics users was $120, rising to $245 for policies with a young driver — meaningful, but far short of the 40% maximum discounts insurers advertise. Weigh that against being tracked continuously and read the privacy policy before you opt in.

The Bottom Line

Usage-based car insurance is a real discount, not a gimmick — Triple-I confirms nearly every major carrier now offers it, and safe, low-mileage drivers can meaningfully cut their premium. ¹ But the advertised “up to 40% off” is a ceiling almost nobody hits; Consumer Reports’ survey puts the median real-world savings at $120 a year. ² And the 2024–2026 GM/OnStar/LexisNexis case is a concrete reminder that “who sees my driving data” is not a hypothetical question — it became an FTC enforcement action and a multimillion-dollar state settlement. ^{4 5} Before you plug in a device or enable an app, read the privacy policy, understand whether the program can raise your rate as well as lower it, and go in with realistic expectations about the discount.

Related reading

• How much car insurance do you actually need?
• Does your credit score change your car insurance rate?
• Collision vs. comprehensive car insurance
• Find the cheapest car insurance rates
• The best car insurance of 2026, scored on the data — our independent Nerd Score review
• More auto insurance guides

Disclaimer: This article is for educational purposes only and does not constitute personalized insurance advice. The Insurance Nerd is an independent review desk, not a licensed insurance agency. Telematics program terms, tracked data, discount structures, and privacy practices vary by insurer, vehicle, and state — read the specific program’s current terms and privacy policy, and consult a licensed agent for guidance specific to your situation.