New proposed Pay As You Drive Regulations in California

The Commissioner of Insurance in California has put out a second round of regulations around Pay As You Drive car insurance in California for comment. The regulations are pretty good, and allow for a wide range of designs of car insurance products using mileage as a rating factor.

Some highlights:

1. The regulations allow for the product design that we have in Australia. We’re quite flattered by that! It is good to know we could serve as an example for California!
2. The regulations allow for a wide range of ways in which to monitor mileage, including telemetry (tracking devices). The devices are NOT allowed to track location though.
3. The regulations stop short of mandating insurance companies to HAVE to provide PAYD. This will no doubt disappoint some of the strong advocacy groups. The Multiple Prisoner’s Dilemma will make uptake slow, regardless of the regulations.

The one aspect of this that I still don’t understand is the vehement objections that are made against privacy violations. The regulations prevent location tracking, which I understand, and which I think protects both the consumer and the insurance company.

There are however people who object against driving behaviour being captured. Why would that be? Can someone enlighten me? Why would we as a society not want to know who drives irresponsibly, and why should the rest of us be paying extra insurance for people who drive like hoons?

In one of the responses to the regulations, Andrew J. Blumberg (Stanford), Lee Tien and Peter Eckersley, says the following:

“We believe that it makes no sense to permit the use of any “technological device” without making clear what it does or does not collect. It is our understanding that commercially available devices gather significant information about driving behavior, such as braking, swerving and acceleration. We fear that the “innovation” and “attendant benefits” of a verified actual mileage program lie not in greater accuracy in verifying annual miles driven but in the collection and exploitation of information that does not relate to actual mileage. This fear is amplified by the fact that insurers may use “[i]nformation collected by a technological device” to “calculate automobile insurance rates,” which is entirely different from verifying actual mileage. Mileage verification should not be used as a subterfuge for collecting other information about drivers. Furthermore, the text does not specify adequately controls on the use and dissemination of the information collected. To this end, we recommend the following specific changes to the proposed regulations:

The technological device will be used only to collect the verified actual mileage, and no other information. In particular, it will neither collect nor store nor transmit information about the position, velocity, or acceleration of the vehicle.”
Original link here.

Why should we be sensitive about that?

For interest, the actual regulations have the following three product descriptions in them:
1. Time Basis Policy. All coverages are offered for a set time period. If the block of miles purchased by the insured expires and the insured does not purchase additional miles, all coverages will continue to the end date of the policy. However, this does not relieve the insured from any obligation under the terms of the policy to pay for miles driven in excess of the purchased block. The price per mile for miles purchased after expiration of the mileage block may be greater than the price per mile for miles purchased before expiration of the mileage block, if the insurer establishes an actuarial basis for such differential pricing and the Commissioner approves the differential pricing in the insurer’s rate or class plan application.

2. Hybrid Time Basis and Miles Basis Policy, with notice of expiration provided at time of policy purchase. Automobile liability coverage is offered for a set time period. If the block of miles purchased by the insured expires and the insured does not purchase additional miles, all coverages other than automobile liability coverage will expire, provided the insurer gives notice pursuant to California Insurance Code Section 663. An insurer may comply with the notice requirements of California Insurance Code Section 663 if it gives notice to the insured at the time of purchase of the policy that specified coverages other than automobile liability coverage will expire upon exhaustion of the purchased miles. Such notice shall be effective only if the insured agrees in writing at the time of purchase of the policy to the terms of the notice and acknowledges his or her understanding of the consequences of exceeding the purchased miles.

3. Hybrid Time Basis and Miles Basis Policy, with notice of expiration provided at time the insurer determines that purchased miles have been exhausted. Automobile liability coverage is offered for a set time period. If the block of miles purchased by the insured expires and the insured does not purchase additional miles, all coverages other than automobile liability coverage will expire, provided the insurer gives notice pursuant to California Insurance Code Section 663. An insurer may comply with the notice requirements of California Insurance Code Section 663 if it gives notice to the insured at the time the insurer determines that the purchased miles have been exhausted. The coverages subject to expiration will expire 30 days following the insurer’s notice (in the case of nonrenewal) and 20 days following the insurer’s notice (in the case of an offer of renewal), unless the insured purchases more miles.