Vehicle insurance
Auto insurance is insurance consumers can purchase for cars, trucks, and other vehicles. Its primary use is to provide protection against losses incurred as a result of car accidents.
Coverage levels
By buying auto insurance, depending on the type of coverage purchased, the consumer may be protected against:
- The cost of repairing the vehicle following an accident
- The cost of purchasing a new vehicle if it is stolen or damaged beyond economic repair
- Legal liability claims against the driver or owner of the vehicle following the vehicle causing damage or injury to a third party.
Liability insurance covers only the latter, while comprehensive insurance covers all three. Even comprehensive insurance, however, doesn't fully cover the risk associated with buying a new car. Due to the sharp decline in value immediately following purchase, there is generally a period in which the remaining car payments exceed the compensation the insurer will pay for a "totaled" vehicle.
Public policy
In many countries it is compulsory to have purchased auto insurance before driving on public roads. This is to protect third parties against the financial consequences of loss, damage or injury caused by a vehicle. Typically, coverage against loss of or damage to the driver's own vehicle is optional - one notable exception to this is in Saskatchewan, where SGI provides collision coverage (less a $700 deductible) as part of its basic insurance policy.
Pricing plans
Flat rate
Most car insurance plans charge a flat rate for six months of coverage, regardless of how much the car is used. The rate usually depends on the type of car and risk factors such as the age, sex, marital status, and driving history of the primary and secondary drivers.
Pay-as-you-drive
A pay-as-you-drive system would charge policyholders a variable rate based on the number of miles driven. This would benefit drivers who drive their cars infrequently. The National Organization for Women(NOW) believes that females are likely to benefit from such a plan because women, on average, drive fewer miles than men[1]. The organization also argues that making insurance more affordable will increase the number of vehicles insured, benefiting all drivers. The Oregon Environmental Council supports the idea, citing its potential environmental benefits [2].
Several different implementations of this idea have been devised.
Odometer-based systems
Cents Per Mile Now, an offshoot of NOW, advocates a car insurance pricing scheme based on odometer readings. The policyholder would purchase insurance to cover a certain number of miles driven. The beginning and ending odometer readings would then be printed on the insurance card, so that in the event of a traffic stop, an officer could easily verify that the insurance is current.
Critics point out the possibility of cheating the system by odometer tampering. Although the newer electronic odometers are difficult to roll back, they can still be defeated by disconnecting the odometer wires and reconnecting them later.
GPS-based system
In 1998, Progressive Insurance started a pilot program in Texas in which volunteers installed a GPS-based technology called Autograph in exchange for a discount. The device tracked their driving behavior and reported the results via cellular phone to the company[3]. Policyholders were reportedly more upset about having to pay for the expensive device than they were over privacy concerns [4].
OBDII-based system
In 2004, the company launched another pilot program to allow policyholders to earn a discount on their premiums by consenting to use its TripSense device. TripSense connects to a car's OnBoard Diagnostic(OBDII) port, which exists in all cars built after 1996. The discount is forfeited if the device is disconnected for a significant amount of time[5].
According to Progressive[6], the TripSense device records:
- Start time
- End time
- Miles driven
- Duration
- Number of aggressive braking events
- Number of aggressive acceleration events
- Speed at 10-second intervals
- Time and date of each connection/disconnection to the OBDII port.
Sources
- Texas Gives Green Light to Cents-Per-Mile Auto Insurance, Michelle Keller, National Organization for Women.
- Pay as You Drive Now, Oregon Environmental Council, 2003.
- Cents Per Mile Now, 2004.
- Progressive's "pay-as-you-drive" auto insurance poised for wide rollout, Joe Frey, Insure.com, July 18, 2000.
- Insurance program rewards drivers who drive less and slower, Chris Miller, Aftermarket Business, Sep. 24, 2004.
- New technology provides detailed info on driving habits, by Tom Scheck, Minnesota Public Radio, August 23, 2004.
Photo credit: car-accidents.com. Used with permission.