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Telematics Insurance is also called usage-based insurance or UBI, pay-as-you-drive insurance (PAYD), or pay-how-you-drive (PHYD) insurance. The central idea is that you can get a discount on your car insurance if you are safer than the typical driver (or if you drive fewer miles than average each year).

Telematics insurance for PHYD provides a policy where your insurance company monitors how you drive and adjusts your costs based on your driving habits. This generally requires a telematics box, which is a small device that’s installed in a car. The device uses GPS to relay data about your driving to the insurance company.

The insurance company can then judge how safe a policyholder's driving is and provide a driving score.