State Farm and OnStar have a Christmas present for you but you need to be an existing State Farm customer and a former OnStar subscriber and you need to act before midnight, Dec. 31, 2011. In a novel tie-up between OnStar and State Farm, State Farm will pay for a year of OnStar’s Safe & Sound service (a $199 value) including automatic crash notification, roadside assistance, hands-free calling and on-demand and emailed vehicle diagnostics.

In an even more creative twist, State Farm customers interested in State Farm’s Drive Safe & Save usage-based insurance program – available in seven states – can have OnStar send their data to State Farm for State Farm to determine if the insured is eligible for additional discounts based on their driving behavior.  The offer shows State Farm in the forefront of the usage-based insurance business – an unusual place for such a large car insurer.

As the largest auto insurer in the U.S., State Farm has more to lose financially in the short-term from offering customers discounts.  But State Farm also has the most to gain in the long run from reducing customer churn and offering additional services.  The Drive Safe & Save program is also a technology leader in that it is offered two ways: either via an aftermarket device that can be connected to the car (See: http://bit.ly/t7SzRn - State Farm, Hughes Raise Usage-Based Insurance Bar - Insight – Lanctot); or with data derived from the OnStar embedded system.  (Might a smartphone-based solution be in the cards?)

It’s also a low risk proposition for State Farm because the company probably long ago determined that previous OnStar users were reasonable risks as responsible drivers and excellent candidates for a usage-based insurance offering.  If they had any doubts about that, OnStar will have been able to show them the relevant data to help them make that determination.  

There are further implications to the offer including OnStar’s desire to tap into the massive fleet (10M+) of OnStar-equipped cars that are currently dormant due to the service not being renewed.  Like GM partner Sirius XM - which is trying to woo back previous subscribers with $5/month subscription offers - OnStar can instantaneously turn on a massive network of connected cars if it so chooses, though it will need a customer's approval before doing so in these privacy-obsessed days.  The State Farm offer opens the door to that customer approval for turning the service back on.

Expect more attractive offers from OnStar as the company seeks to win back former subscribers with new services, deep discounts and marketing partnerships such as the one with State Farm.  The only downside to the State Farm Drive Safe & Save part of the offer is that it is only available in seven states.  Progressive Insurance’s Snapshot usage-based insurance offering is available in 37 states, allowing Progressive to promote the program more effectively and efficiently with national advertising vs. the direct mail approach used by State Farm.