What is this about?

This blog is focused on providing information on Pay As You Drive car insurance in Australia. If you find any information, papers, news articles or websites that we should add, please let us know!

Sunday, September 21, 2008

Getting Privacy Right in Pay-As-You-Drive

Pay-As-You-Drive is a concept whose time has come. It is an amazingly obvious concept, with wide benefits for consumers, the economy and the environment. The question is, why has it not taken off? It has been contemplated (I am told) since the early 1990s), and versions of it has been in test since 2000. It is only now that it being sold as a commercial product (as opposed to a pilot or test). Why has it not taken off yet?

Probably 3 reasons:

  1. The technology has been too expensive to date for telemetry. Norwich Union as an example had to build the black box from scratch at huge expense. Technology is now very cheap and becoming cheaper.
  2. Privacy concerns. People don't like being tracked. Not yet anyway. I don't entirely buy this reason – I think it is a storm in a teacup. Think about your mobile phone. You don't think your carrier knows where you (your phone) are always?
  3. Too complicated. The first set of products was very complicated. The Norwich Union one charged differently for time of day, type of road and combinations thereof. Just too hard to understand. That plus the fact that premiums were charged in arrears, so if you go on a long holiday by road, you get a big bill from your insurer.
  4. A Prisoner's Dilemma. But more about this in another post.

This post is about privacy. It is ironic that the only academic paper (that I can find anyway) on privacy and telematics was published in Australia in 2006. It proposes a solution where the onboard black box calculates the premiums in the confines of the car, and sends anonymous aggregate driving behavior data back to the insurer for modeling purposes, whilst preserving driver privacy. So let us get back to why privacy is a concern in the first place.

Why would people be concerned about privacy, with relation to -

  1. How they drive,
  2. When they drive, and
  3. Where they drive?

The only reasons I can think of are because of wrong doings. Either you're driving too fast, breaking the law in some other way, or maybe you're adulterous. Presumably existing privacy laws will protect you from your spouse catching you with your pants down, which leaves only breaking the law. From a society perspective, we have strict road laws, with large amounts of money being spent on a police force and infrastructure such as speed cameras. Safe driving is everyone's interest.

So the privacy concern for insurance would be that the government confiscates a copy of the black box data and charges drivers for misdemeanors based on the data. Is that a bad thing? I don't think so. It is a lot better than the current system, and will result in much safer roads. So should legislation ban GPS based devices? Probably not. Ultimately consumers will vote with their wallets, and if they think they're at risk because they drive like hoons they will opt out. From an insurance company perspective, that is a good thing.

The flip side is however also an interesting conundrum. What if the insurance company knows that a driver speeds often? What if it is clear from the data that a driver is putting others' lives at risk? Does the insurance company become complicit in the crime? Does the insurance company have a moral or even legal obligation to report the driver?

Ultimately I believe that all insurance will be telemetry based (Real Insurance does not rely on telemetry, but rather on a trust-based system), and all cars will be tracked by the government for all kinds of reasons (including taxes, law enforcement and traffic control). In the mean time, while the technology matures and while privacy issues are still open, we need some runs on the board with Pay As You Drive. The article below is one of quite a large number in the US about the technology and privacy. The original source is the Insurance and Technology Blog.

Getting Privacy Right in Pay-Per-Drive

By Anthony O'Donnell
Sep 19, 2008 at 08:44 AM ET

Our recent report on Real Insurance's mileage-only pay-per-drive policy raised, once again, the question of what it will take to get drivers to use such programs. Industry observers have predicted the resurgence of telematics (the monitoring of driver behavior via telemetry) but privacy concerns continue to shape insurers' pay-per-drive strategy, as the Real Insurance example demonstrates. The Australian insurer bypasses the "Big Brother" fears associated with telematics-based pay-per-drive programs by dispensing with telemetry all together and relying instead on customer-reported mileage alone.


Progressive´s convenient MyRate device represents an improvement on more costly "black box" technology that has hampered adoption.

Progressive has struck a different balance, dispensing with location information, but keeping the telemetry. The Mayfield Village, Ohio-based insurer has also addressed cost concerns that dogged Norwich Union's use of Progressive's patented methodology and technology: getting the "black box" that registered the telemetry proved prohibitively expensive.

Through its MyRate program, Progressive supplies a small, portable device that can easily be plugged into the on-board diagnostic (OBD) port of many car models built after 1996. The device delivers a much richer portrait of driver behavior than Real Insurance's mileage-only plan by recording mileage, braking and acceleration, and time of day. The device periodically transmits that information wirelessly back to Progressive.

With MyRate, Progressive has struck a compromise: the insurer loses valuable location information that it could use for underwriting purposes, but the carrier thus reassures customers uneasy with the idea of their insurer (or anyone else privy to the recorded information) tracking their every move.

Will that be enough for Progressive's Pay As You Drive to take off this time? Though the carrier has not reported any business metrics, Progressive claims that customer adoption has been promising. MyRate is now available in seven states and one out of three eligible drivers (e.g., those whose car has an OBD port) have accepted Progressive's offer to use MyRate, the carrier says.

Monday, September 8, 2008

Pay As You Drive a solution for Motoring Hip Pocket Pain

The article below was posted on News.com.au (by Alex Tilbury). It is write-up on how to avoid the economic squeeze of owning and driving a car. The reason it appears on this blog, is because it gives Pay As You Drive as one of the solutions to this problem!

Easing hip-pocket pain for motorists

By Alex Tilbury September 08, 2008 12:00am

OH NO, the fuel light is blinking again, and it only feels like yesterday that you filled the tank for about $75, the price for an average 50-litres.

People who drive a lot have been smacked hard by soaring petrol prices and are holding out hopes of lower prices as the world crude oil price drops down to $US107/barrel.

CommSec chief equities economist Craig James said recently that he expected petrol to drop to $1.40-$1.45 a litre, from close to $1.70, saving the average family about $30 a month.

But outside forces aside, there are simple steps motorists can take to lower their fuel bill.

Supermarket savings

The  first and easiest way to ease the hip-pocket pain at the bowser is to take full advantage of petrol discounts from the major supermarkets.

Most commonly they equate to 4 a litre off the pump price at branded service stations if you have spent $30 or more on your groceries.

For a small car it may not seem like much but for a petrol guzzler that does a lot of kilometres it really adds up.

The competition watchdog has been looking into the so-called petrol price cycle and asking why petrol seems to spike dramatically over school holidays and at Christmas/Easter time.

The Australian Competition and Consumer Commission found the petrol cycle tends to show a sawtooth pattern, whereby prices rise rapidly over a short period and then steadily decrease, with "Cheap Tuesday'' the best day to buy during the week.

Tyre power

Keeping your car's tyres inflated to the manufacturer's recommendation will lower drag on the road and wear and tear. Your best bet is to buy an accurate tyre gauge, because the ones at service stations get knocked around.

If you don't use it, lose it

Many people use their car boot as extra storage space, and that's adding unneeded kilos to the car's weight. This reduces fuel efficiency by about 2 per cent for every 50kg.

Roof racks not in use should also be removed to lower wind resistance.

Remove heavy items such as golf clubs or even bulky prams that you don't need every day as they weigh the car down and add to fuel use.

Cool air

Avoid using airconditioning whenever possible. Airconditioning reduces fuel economy by 10 to 20 per cent when operating. Use the air ventilation system instead. However, at speeds of over 80km/h, airconditioning is better for fuel consumption than an open window.

Cheapskate

Mother of three Cath Armstrong who founded the website http://www.cheapskates.com.au only buys cars that are 12 months' old. They still have that new car smell and they are under warranty but "we are not paying full price and most of the glitches have been worked out''.

"Driving smoothly will help with your fuel consumption, so keep the revs under 2000 and you'll save petrol as the higher the revs your engine uses more fuel,'' she says.

"Avoid braking a lot and short journeys, too. Also, combine your trips, if you are doing the school run, that's when you also go to the post office or shops. Don't make lots of separate journeys.''

Comprehensive insurance 

It's a huge bill each year, upwards of $1500 for a four-wheel-drive owner.

And if you have RACQ or Suncorp comprehensive insurance, give NRMA Insurance a buzz at renewal time. The cheeky southerners reckon if they can't beat your current insurer's renewal price, they will send you $50 for wasting your time. Too easy.

Many insurers offer a slightly cheaper car insurance premium to female drivers, because claims data shows women are safer drivers.

Pay As You Drive

An ideal  solution for people who catch public transport and don't drive their car often or have a second or third car they use sparingly is http://www.payasyoudrive.com.au.

Underwritten by Real Insurance, part of the Hollard Group of companies, PAYD relies on the customer reporting the odometer reading in their car.

A 35-year-old female driver living in Corinda who drives an automatic Toyota Corolla hatch 2008 with an agreed value of $20,700 normally would pay insurance of $505. If she drove 5000km, the PAYD insurance would cost her $309, and at 10,000km the premium would be $399. A saving of $106 to $196 a year.

4WD = deep pockets

Owners of large, powerful four-wheel drives definitely pay for the privilege.

The RACQ's annual survey of private motor vehicle expenses shows big sports utility vehicles cost owners anywhere between $16,000 and $21,000 a year to own and operate.

Light cars at the other end of the motoring scale come in at the much more affordable $6600 to $8600.

The automatic LandCruiser turbo-diesel took survey honours as the most expensive vehicle to own and operate in Queensland, at $405.16 a week or whopping $21,068 a year.

By contrast the Hyundai Getz 1.4 litre manual hatchback, right, cost its owners a relatively modest $126.41 a week or $6573 annually and qualified as Queensland's cheapest car.

The motoring organisation surveyed the costs associated with 60 popular vehicles based on a five-year ownership period under average operating conditions for motorists travelling 15,000km a year.

RACQ vehicle technologies executive manager Steve Spalding says the cost of running a typical family sized car is now about $12,000 a year -- or 80 for every kilometre.

Unleaded and premium petrol have increased 29 per cent and 27 per cent respectively with diesel skyrocketing by nearly 40 per cent since 2007.

Excesses

You can sometimes save on comprehensive car insurance premiums by increasing the excess you would pay if you had to make a claim.

But NRMA Queensland state manager Brett Robinson  warns drivers need to make that decision based on their own financial circumstances.

"If you opt for a higher excess you need to ensure you're in a position to cover the cost if you make a claim,'' he says.

Hybrids

The RACQ reckons hybrid cars do not stack up too well on economic grounds due largely to their substantially higher purchase price and the consequent effects on standing cost components.

"The petrol Civic is cheaper to own and run than the hybrid variant and the petrol-driven Corolla was cheaper than its closest equivalent of Prius hybrid,'' Mr Spalding says.

"It's doubtful if consumers will flock to buy hybrids unless their pricing is more closely aligned with equivalent petrol models or there are other financial `offsets' to improve their economic attractiveness.''

Suncorp also offers an eco-friendly motor vehicle insurance discount of 10 per cent on their premium for comprehensively insured hybrids powered by a combination of electricity and one or more other fuel types, such as the Toyota Prius or Lexus 450 GHS.

NRMA Insurance offers customers a saving of up to 10 per cent on their comprehensive car insurance for driving a recognised fuel efficient car.

Drive a hard bargain

One  savvy car buyer is Lee-Ann Brighton, an internet marketing guru who wrote the ebook 'How I saved $39,856 in two years just by asking for a deal.'

She says the first thing in any negotiation to remember is "be prepared to walk away''.

"If you don't like the sales person, or don't feel comfortable with the deal, or just generally not happy with how things are going, then be prepared to walk away,'' Ms Brighton says.

"There is always someone else selling the same thing -- you need to deal with people and companies you are happy with.

"I hate dealing with fools, don't you? If a person is representing a product or service, then I expect them to know what they are talking about.''

Top 10 Tips for Fuel Economy

* Drive smoothly
* Watch your speed as higher speeds consume more fuel.
* Avoid prolonged engine idling.
* Avoid peak hour and other heavy traffic.
* Use your car's airconditioner sparingly.
* Have your car serviced regularly. Cars that run more efficiently burn less fuel.
* Keep tyres correctly inflated. Tyres that are low on air pressure have greater rolling resistance and that means your car's engine works harder, using more fuel.
* Don't carry unnecessary weight around in the car as this increases fuel use.
* Consider converting your car to LPG or buying a smaller, more fuel-efficient vehicle.
* Be sceptical about the claims made about add-on petrol-saving devices available.

Friday, September 5, 2008

Infrequent drivers pay less insurance

Source: news.com.au

INFREQUENT drivers can now insure their cars for the kilometres they plan to travel after the launch of the Pay As You Drive (PAYD) insurance policy.

PAYD is the first scheme of its kind in Australia and has been introduced by insurer Real insurance.

It is tailored for good drivers over 25 who spend less time on the road than the average person.

Real Insurance chief executive Roger Grobler says the current car insurance system discriminates against those who drive less.

He said that with high fuel costs, traffic congestion and environmental concerns forcing people off the roads, infrequent drivers should be compensated.

"Low-mileage drivers are simply subsidising insurance costs for high-mileage drivers,'' Mr Grobler said.

"We want to give these people a fair go.

"Pay As You Drive reflects large-scale changes in motoring habits and in so doing, accommodates the changing needs of motorists.''

Unused kilometres can be rolled over year to year or refunded, while new kilometres for top-ups can be purchased over the phone.

If no claim is made for three consecutive years, PAYD customers will receive a 10 per cent rebate of the total premiums paid during that time.

While similar insurance products exist overseas, they require drivers to have their cars equipped with monitoring devices.

PAYD customers report the odometer reading of the car insured.

Real Insurance esimates that significant savings can be made with its product and could be as much $923 compared with an average traditional insurance policy for a 28-year-old male from south-west Sydney driving a $23,000 Holden Astra.

Real Insurance has been operating for three and a half years in Australia and the policy is underwritten by the Hollard Insurance Company.

Related Coverage

Feeling like breaking the law? Take it “Ezy” with Laughing Out Loud insurance

Should you be able to insure yourself against breaking the law? Well you can. Just buy a L.O.L. Assist policy (and not, it is not "Laughing Out Loud" insurance…). It is Loss of License Assist insurance from Ezy Insurance. And the tag line reads "Can you afford not to insure with us?"

On the one hand it is good to see some innovation in the insurance market, but on the other hand you've got to wonder: Surely this makes a joke of the law? No wonder the press is calling it "hoon insurance". And people are not happy about it. But "any publicity is good publicity" right? LOL!


Source: news.com.au

Anger at "hoon insurance"

NEW  "insurance for hoons'' products that offer banned drivers big taxi and chauffeur-fare payouts have angered road safety campaigners.

Ezy Insure is offering a speeders' package that provides drivers who lose their licences over a series of traffic infringements $1000 a month for three months to cover the cost of alternative transport.

Penny Martin, of Working Against Culpable Driving, said the company was cushioning punishment for reckless drivers.

Ms Martin, whose son, Josh, and his friend, Jack Gilhooley, both 16, died in a car driven by a drink-driver, said: "It tells drivers it doesn't matter what they do because they won't be inconvenienced. This is the wrong message to be sending to drivers, especially younger ones.''

The RACV and traffic police described the policy as "perverse'' and "inappropriate''.

Ezy Insure states on its website it does "not condone speeding or reckless driving''.

But it adds: "If you lose your driving licence through an accumulation of points, we will assist you with the cost of alternative transport during your suspension.''

The cash could help motorists use taxis or hire a personal driver so they can continue life as usual, it says.

Cover starts from $10 a month and drivers must not receive more than three demerit points per offence.

Company director Alan Brewis said the policy was aimed at the "normal driver''.

"It's for the sort of person who is driving along and loses concentration, goes over the limit by a five or 10kmh and gets snapped,'' he said.

He would not provide figures, but said since the package was launched in January the response had "exceeded expectations'' and was "very, very popular''.

The RACV said Ezy Insure was obviously targeting a niche clientele, but it had picked the wrong market for this kind of product.

"It's hoon insurance -- this is a totally perverse offer,'' RACV public policy general manager, Brian Negus said.

He said the nature of the policy encouraged unsafe driving because motorists would feel protected against punishment.

"If you lose enough demerit points often enough to lose your licence then you have a problem,'' he said.

A police spokesman said the insurance package was a commercial matter, but it appeared to be "inappropriate''.


 

Thursday, September 4, 2008

New York Times Letter on PAYD response to less driving

The following is a letter from Jason Bordoff and Pascal Noel to the New York Times, and posted in their "Opinions Section".

There is not really anything new that has not been posted on this blog before, but the letter is eloquent and states a clear answer to the question of what happens if people drive less. The point being that current insurance pricing does not adjust efficiently for it, and insurance companies will make abnormal profits in the short to medium term in response to less driving. So Pay As You Drive is a much better consumer proposition in response to less driving.

Source: New York Times

Lower Premiums

"Hit Up for High Premiums" (Business Day, Aug. 23) reports that auto insurance premiums are rising even though Americans are responding to higher gas prices by driving less, which means fewer accidents and thus fewer insurance claims.

If auto insurance premiums were priced per mile driven rather than as a lump sum per year, drivers would automatically see insurance costs decline when they drive less and would not have to rely on insurance companies to respond to reduced driving with lower premiums.

According to our most recent research, such pay-as-you-drive auto insurance pricing would save two-thirds of households money on auto insurance, with an average savings for those households of $270 per car.

The system would also give drivers incentives to drive less, which would mean reduced accidents, congestion, carbon emission, oil dependence and pollution — benefits we estimate to be between $50 billion and $60 billion per year.

Jason Bordoff
Pascal Noel
Washington, Aug. 27, 2008

Published 2 September 2008.

Tuesday, September 2, 2008

Why Norwich Union pressed pause, and the problem with Telematics

The section below is from a blog called "Grush Hour". It contains a transcript from an interview with Norwich Union's Erik Nelson. The interview itself is a worthwhile read, and gives insight into why they pressed "pause" on their version of Pay As You Drive. The key reasons are the cost of the GPS box. I think they also made a mistake in designing an over-complex product. But the thinking is well explained. It is also interesting to see how high their retention rate was.

From the Grush Hour:

It's old news by now that Norwich Union has withdrawn from the fledgling PAYD insurance market. Many were taken by surprise. Listening to spokesperson Erik Nelson explain why provides that perfect 20-20 hindsight for the rest of us. He also provides a fabulous insight into the value of this program. He still clings to one critical, false hope however. But let's hear from Erik first. He is interviewed here by someone from Traffic Technology International, and transcribed below for your convenience.

TT: Norwich Union's innovative telematics-based pay-as-you-drive insurance policy was withdrawn earlier this year because it was costing too much to operate, but as spokesman Erik Nelson reveals, the company plans to re-enter the market once economic conditions prove more favorable.

EN: What we did was we installed a box in their vehicles, a GPS-based box and that box tracks their movements, it tracks a couple of things actually. It tracks how far they were traveling, it tracks the time of day and it tracks where they were traveling - that is what type of road specifically they were on. The reason we are interested in a road – what type of road - is because we know for example that motorways are ten times safer than urban roads so we're able to give you better rate on motorways than driving on an urban road which is more dangerous. We also know for example that driving at night, especially for young drivers is much more dangerous than it is traveling during the daytime, so we take in the time of day, we take in the road that you're using and we're able to give you an individualized pence-per mile tariff. Now based on that, [and] the number of miles you drive, you get your premium.

TT: Did you find that people actually did change their driving habits as a result of this policy?

EN: That's a very interesting question. I think that's very difficult to answer, because of course we didn't know what they were driving like beforehand. What we did see was that people were driving over the time gradually a little bit less, I think they were very conscious of how far they were driving. The big thing is not about how far they were driving, though. It's about the times of day and they types of roads they were using. We definitely saw safer driving behavior. As a result our claims reduced by more than 30% which is a staggering statistic and a huge boon for road safety. But when you are able to incentivize, for example, young drivers not driving during the most dangerous times of day for them, when they are 10 times more likely to be involved in an accident at night, 14 times more likely to be involved in an accident at night on the weekend. And you incentivize them to take the taxi, take public transport or whatever when they go out during those times you see accidents drop more than a third, you're really on to something in terms of roads safety.

TT: I understand that renewals were really quite high on this, the policy seemed to be popular, yet you didn't carry it on from the Spring of this year.

EN: That's correct. The retention rate was at or above 90% during the time that we operated the policy, and feedback from customers was overwhelmingly positive. This is probably because customers were saving around 30% on their premiums. So we paused it because, simply put, because the economics of the policy don't work out for us right now. We thought that telematics was going to be a lot further along than it actually is. We thought that motor manufacturers would be installing telematics devices in the vehicles that they are making at the point of manufacture, but that did not come to be, and certainly not on the scale that we imagined. So instead of piggy-backing our little insurance policy on the back on existing piece of kit in a car, we were actually forced to provide the kit and install the kit ourselves which from an operating model point of view becomes very expensive and that is why we have temporarily withdrawn.

TT: Is it the case that the motoring industry just isn't ready for this yet?

EN: I don't know if it is the case of whether the motoring industry is ready for it. You'd have to speak with the motor manufacturers about that. Certainly it's the case from our perspective I think we were just a little bit ahead of our time. I think we as a company still have faith that the telematics industry will continue to evolve and at some point the time will be right for us to re-enter the market because their will be more telematics devices in vehicles and it will be much more sustainable for us to operate a policy such a pay-as-you-drive and we look forward to re-enter the market in a very good position at that time.

TT: Do you foresee that technology like that is very much going to be a key part of insurance policies in the future, like red-light boxes that stop cars maybe from driving over red lights, that sort of technology's going to be key?

EN: There are so many different ways that this technology can be used. As an insurer, our main objective is to find a way to calculate a premium. I think that is what pay-as-you-drive did incredibly cleverly and incredibly well and that is calculate a usage-based premium that motorists found fair and transparent in a way that has never been done before.

TT: Erik Nelson from Norwich Union. If you have any questions about this feature contact tt@ukintpress.com.

~~~


The false hope Erik Nelson clings to is that the automotive manufacturers will soon pre-install the telematics he needs. While this is technically possible, it is unlikely – mostly because we do not yet know everything about how we want these telematics to behave. To do insurance-only is an unworkable model – as Erik can attest. We'll need a whole fleet of cross-subsidizing services to make the pre-installation calculus work out. A package like OnStar causes the purchaser some pause before adding it to the invoice. We will soon be paying for road use via GPS, which itself remains unreliable for most telematics manufacturers in built-up cities. And why not handle parking while we're at it?

The assumption that we will record GPS tracks and process them off-board will hit a privacy wall. The counter assumption that we will pay everything on-board raises equal security concerns. The ISO standards to guide all this were completely scrapped a couple of years ago after nearly a decade of work. Only some components of the new edition, which I estimate to be about ¾ complete, will survive a hard privacy review in the EU and the US. What little the privacy advocates leave intact of the new standard will scare off most of the automotive manufacturers.

I believe all this will serve to delay the time when the automotive manufacturers will provide a "whole product" that an insurer could simply "piggy-back" on. The telematics market segment that will handle financial transactions (insurance, road-use, parking), must be "liability critical" – in other words, it must be critically reliable and repeatable – something
we call "financial grade" GPS. The technology to do this is not the same as navigation grade GPS and the automotive manufacturers know this.

This, and the fact that there is already a world fleet of well over 500,000 vehicles that will need an aftermarket fitting, informs my prediction that the early years of PAYD will based on self-installed, specialized, "financial-grade" systems that also provide a couple of other payment services such as road and parking tolls.