Usage based insurance

From Wikipedia, the free encyclopedia

  (Redirected from PAYD)
Jump to: navigation, search

Usage based insurance, also known as pay as you drive (or PAYD) is a type of automobile insurance whereby the costs of motor insurance are dependent upon type of vehicle used, measured against Time, Distance and Place.

This differs from traditional insurance, which attempts to differentiate and reward "safe" drivers, giving them lower premiums and/or a no-claims bonus. However, conventional differentiation is a reflection of past history rather than present patterns of behaviour. This means that it may take a long time before safer (or more reckless) patterns of driving and changes in lifestyle feed through into premiums.

Contents

[edit] Economic and environmental impact

In economic terms, usage based insurance can be regarded as a form of context-aware service. Usage based insurance has been strongly promoted by environmental and transport groups, mostly as a way of encouraging people to use their cars less.

[edit] Insurance

[edit] Concept

The simplest form of usage based insurance bases the insurance costs simply on the number of miles driven. However, the general concept of Pay As You Drive includes any scheme where the insurance costs may depend not just on how much you drive but how, where and when you drive.

Pay as you drive (PAYD) means that the insurance premium is calculated dynamically, typically according to the amount you drive. There are three types of usage based insurance:

  1. Cover is based on the odometer reading of the vehicle.
  2. Cover is based on the number of minutes the vehicle is being used as recorded by a vehicle-independent module transmitting data via cellphone or RF technology.
  3. Cover is based on other data collected from the vehicle, including speed and time-of-day information in addition to odometer readings.
  4. Driving is monitored using a GPS device.

The formula can be a simple function of the number of miles you drive, or can vary according to the type of driving or the identity of the driver. Once the basic scheme is in place, it is possible to add further details, such as an extra risk premium if someone drives too long without a break, uses their mobile phone while driving, or travels at an excessive speed.

Telematic usage based insurance provides a much more immediate feedback loop to the driver, by changing the cost of insurance dynamically with a change of risk, and this means drivers have a stronger incentive to adopt safer practices. For example if a commuter switches to public transport or working at home, this immediately reduces the risk of rush-hour accidents. With usage based insurance, this reduction would be immediately reflected in the cost of car insurance for that month.

[edit] Potential benefits

  • Commercial benefits to the insurance company from better alignment of insurance with actual risk. Improved customer segmentation.
  • Potential cost-savings for responsible customers.
  • Social and environmental benefits from more responsible and less unnecessary driving.
  • For telematic usage based insurance: Due to the 24/7 aspects of vehicle location, it enhances security - both personal security and vehicle security. The GPS technology could be used to trace the vehicle whereabouts following an accident, breakdown or theft. [1]
  • More choice for consumers on the type of car insurance available to buy
  • The same GPS technology can often be used to provide other (non insurance) benefits to consumers,e.g. satellite navigation [1]
  • Social benefits from accessibility to affordable insurance for young drivers - rather than paying for irresponsible peers, with this type of insurance young drivers pay for how they drive.

[edit] Potential drawbacks

  • The system recognises only codified, rather than actual, risk. A speeder, for example, would be heavily penalised in comparison with someone who drove in observance of the speed limit, without considering the overall context. For example, a driver who speeds but otherwise drives in a safe manner would be charged more than a slower driver who changes lanes abruptly, or drives in an inattentive or careless manner.
  • Some systems (but not all) use continuous GPS tracking of vehicles, which may constitute an unacceptable infringement on customers' privacy.

[edit] Commercial products

Insurance companies offering various forms of usage based insurance either as fully commercial products or at least on a trial basis include Progressive, Liberty Mutual and GMAC in the United States, Real Insurance in Australia, Coverbox in the United Kingdom,[2] Hollard Insurance in South Africa,[3] AIOI Insurance Company in Japan, Aviva in Canada and MiWay in South Africa.

Norwich Union has now discontinued their PAYD product in the UK, and announced that existing users will have their contracts terminated. The reason given to customers was lack of demand for the service, and disappointing uptake.[4]

[edit] Progressive Insurance

MyRate is a car insurance program developed by Progressive Insurance in the United States.[5][6] It is a voluntary, behavior-based insurance program that gives drivers a customized insurance rate based on how, how much, and when their car is driven. MyRate is currently available in Alabama, Colorado, Kentucky, Louisiana, Michigan, Minnesota, Maryland, New Jersey and Oregon.

Driving data is transmitted to the company using an on-board telematic device. The device connects to a car's OnBoard Diagnostic (OBD-II) port (all automobiles built after 1996 have an OBD-II.) and transmits speed, time of day and number of miles the car is driven. There is no GPS in the MyRate device, so no location information is collected. Cars that are driven less often, in less risky ways and at less risky times of day can receive large discounts. Progressive has received patents on its methods and systems of implementing usage-based insurance and has licensed these methods and systems to other companies. Progressive has service marks pending on the terms Pay As You Drive and Pay How You Drive.

[edit] Liberty Mutual Insurance

Onboard Advisor is a commercial lines usage based insurance product by Liberty Mutual. It offers up to 40% discount to commercial and private fleets based on how safe they actually drive. It also offers a set of tools for assisting fleet owners to improve safety as well as reduce fuel consumption and other operational expenses. The program bundles several solutions[7] for increased value add to customers: Performance Advisor (insurance and safety monitoring part) is provided by Sensomatix, Mobile Advisor (fleet monitoring part) is provided by General Electric, and Fuel Advisor (fuel card application) is provided by Voyager/US Bank.

[edit] Real Insurance

Pay As You Drive is a product developed in Australia by Real Insurance [8] and Exigent Insurance [9]. It solves a number of the problems that Norwich Union and other telematic solutions face, including privacy issues and variable premiums. Customers pay a minimum premium, and then pre-pay for kilometers.

[edit] AIOI

AIOI introduced a Pay as You Drive insurance product in Japan in 2005. They partnered with Toyota to develop the technology. The technology is based on Toyota's G-Book terminals. [10]

[edit] MileMeter

MileMeter is an insurance company that offers pay-by-the-mile auto insurance.[11] They were selected as a finalist in the 2007 Amazon.com Web Services Startup Challenge. MileMeter is currently only licensed to provide insurance in the state of Texas.[12]

[edit] IRIS

The International Research and Intelligent Systems Global (IRIS) company's Pay As You Drive and Fleet Risk Management products won Strategic Risk magazine's "European Risk Management Product of the Year 2008". These products are currently under evaluation by two major insurance companies. [13] IRIS is located in Coventry, United Kingdom.

[edit] GMAC Insurance

GMAC Insurance is one of the first and largest auto insurance companies to institute a Pay-As-You-Drive (PAYD) program in the United States back in 2004. [14] The GMAC Insurance Low-Mileage Discount is an innovative program offered to OnStar subscribers in 34 states, where those who drive less pay less on their auto insurance.

This opt-in program is the first of its kind [15] leveraging state-of-the-art technology using OnStar to allow customers who drive fewer miles to benefit from substantial savings. Eligible active OnStar subscribers sign up to save on their premiums if they drive less than 15,000 miles annually. Subscribers who drive even less than that can save even more (up to 54%).[16]

Under the program, new GMAC Insurance customers receive an automatic insurance discount of approximately 26 percent [17] upon enrollment (existing OnStar customers receive a discount based on historical mileage).

With the subscriber’s permission, the odometer reading from his or her monthly OnStar Vehicle Diagnostics report is forwarded to GMAC Insurance. Based on those readings, the company will decrease the premium using discount tiers corresponding to miles driven.

Information sent from OnStar to GMAC Insurance pertains solely to mileage, [18] and no additional data is gathered or used for any purpose other than to help manage transportation costs. Customers who drive more than 15,000 miles per year are not penalized and all OnStar customers receive an insurance discount simply for having an active OnStar subscription.

The company plans to include additional states in the future.

[edit] AZ LOGICA

AZ LOGICA[19] has developed the PAY AS YOU DRIVE application for Latin America environments. The developing environment is taken in account to calculate the premium. The end device in hardware and the management software design are co-created with the customer (Main Insurance companies)above the AZ Telematic Platform, which serves as base to the final product. The result is a tailor made application which qualifies only the important characteristics for each company. It is being tested in Colombian and in Brazilian main insurance companies, and soon will be expanded to other Latin American countries.

[edit] MiWay

MiDriveStyle is a product developed in South Africa by MiWay.[20] The product calculates car insurance premiums based on the customers individual "Drive Style". Driving style is not only determined by how far and when the vehicle is driven but also where and how it is driven. Driving style includes acceleration, deceleration, speeding and swerving.[citation needed] A unique feature of the MiDriveStyle device is that it doubles up as a tracking device.

[edit] Tests

A number of tests of telematic auto insurance are currently underway or recently completed. These tests are being conducted in many different countries. They include:

[edit] Patents

Telematics Insurance System from AIOI patent application WO 2005/083605

There are several issued patents [22] and pending patent applications that have been filed worldwide on various inventions related to telematic auto insurance. These include:

In order to make sure that patents did not hinder its Pay as You Drive development program, Norwich Union purchased the UK version of EP0700009 and obtained an exclusive license to any EU patents that may emerge from Progressive's EU patent applications.

[edit] Trademarks

  • "Pay as You Drive" is a trademark of Real Insurance in Australia.[8]
  • "Pay as You Drive" is a trademark of Norwich Union in the United Kingdom [23].
  • "Pay as You Drive" is a registered trademark of Progressive Corporation in the US. [24]
  • "Pay as You Drive" is a trademark of AZ LOGICA in Colombia, which is the main developer of PAYD in Latin America. [19]
  • "MileMeter" and "Auto Insurance By The Mile" are U.S. trademarks of MileMeter, Inc. [25]

[edit] Drunk Driving

The use of telematics to detect drunk driving behavior has been proposed. [26] A US patent application combining this technology with a usage based insurance product was open for public comment on peer to patent.[27]

[edit] References

  1. ^ a b Iqbal & Lim, "A Privacy Preserving GPS-based Pay-as-You-Drive Insurance Scheme", International Global Navigation Systems Society, 2006
  2. ^ [1]
  3. ^ [2]
  4. ^ Norwich Union withdraws black-box insurance, Compay Car Driver, 18 June 2008
  5. ^ One-of-a-Kind Car Insurance Program Lets Drivers Save Big Bucks Based on How They Drive
  6. ^ [3]
  7. ^ http://www.onboardadvisor.com/FAQ.aspx
  8. ^ a b [4]
  9. ^ [5]
  10. ^ AIOI 2005 annual report, page 37.
  11. ^ [6]
  12. ^ MileMeter FAQ
  13. ^ "IRIS earns top European accolade", The Birmingham Post, May 12, 2008
  14. ^ [7]
  15. ^ [8]
  16. ^ [9]
  17. ^ [10]
  18. ^ [11]
  19. ^ a b [12]
  20. ^ [13]
  21. ^ "King County gets $1.9 million to test drive innovative statewide car insurance program", March 27, 2007
  22. ^ Nowotarski, Mark, "Progressive Builds a Fortress of Patent Protection", Insurance IP Bulletin, October 15, 2004
  23. ^ Commercial web site for Norwich Union showing trademark
  24. ^ US registration of "Pay as You Drive" trademark
  25. ^ [14]
  26. ^ Harold Davis “’Black Box’ idea travels to cars”, The News-Times, 5/22/09
  27. ^ US patent application 20090063201 “SoberTeen driving insurance”

[edit] External links

Retrieved from "http://en.wikipedia.org/wiki/Usage_based_insurance"
Languages