Coverbox - A Pay As You Drive Aggregator!

One of the interesting things about the UK insurance market is the success of aggregators. An aggregator is an intermediary that sells you insurance from a number of different companies either over the phone or the web. It is not quite a broker in a traditional sense, but similar.

Aggregators have been highly successful. And an aggregator has a compelling consumer proposition, as the consumer can get a number of prices from one place. So for one investment of say 10-15 minutes, the consumer can get a number of different quotes, instead of calling around to many different companies to get the same result. But more on aggregators and specifically aggregators in Australia at another time.

In the UK Coverbox now provides Pay As You Drive insurance on an aggregator basis. The product is a telemetry-based product: They fit a black box to your car, and then charge you retrospectively for when and how far you drove your car. The black box is also a theft recovery device, and they claim 98% recovery within 24 hours. It would be interesting to know how much of that 98% is joy riding and would have been recovered anyway.

The product therefore at first glance seems similar to the Norwich Union product (which the press release says was very "popular"...).

The branding is good. The name "Coverbox" is highly descriptive of what they do. They currently have 4 insurers on their panel (The Co-Operative, Allianz, Equity Red Star and Groupama). They say they will add 2 more.

I hope they do better than Norwich Union. The concept of an aggregator Pay As You Drive certainly has consumer appeal.

The description of what they do (from the coverbox.co.uk website) reads as follows:

You could save money with Pay As You Drive (PAYD) comprehensive car insurance from coverbox. Coverbox treats the insurance cost like a utility bill. At certain times of the year you will drive more miles than forecast and at other times less, just like you use more water in the summer than in the winter. You can control your costs once we install a free coverbox device in your car, still paying for your insurance monthly or annually. Get a quote from our panel of leading insurers to see if you could save money. Coverbox also gives you theft tracking - 98% of cars stolen are retrieved within 24 hours.

The article from myfinances.co.uk is below:
Pay-as-you-drive' insurance policies are about to take UK motorists by storm, according to one provider.

Although the concept of using a 'black box' in-car tracker to measure mileage has been around for a while, take-up has been slow and pioneer Norwich Union 'paused' its policy last year due to the cost of providing the service.

More Than still offers a similar policy for young drivers, Drive Time, but until now consumers have had limited alternatives.

However, new technology with the added bonus of theft-tracking means several insurers are now offering policies through Coverbox, giving consumers more choice.

Customers logging onto the site receive a selection of quotes from insurance companies offering the service, including The Co-operative, Allianz Insurance, Equity Red Star and Groupama Insurances.

Coverbox said insurance will ultimately be offered by six big insurance brand names, with the remaining two insurers to be confirmed shortly.

Sandy Dunn, chairman of Wunelli, the company behind Coverbox, said: "We believe both the consumer and the motor industry are now truly ready for pay-as-you-drive insurance.

"Others have tried before with older generation technology but our solution is new-generation, highly-capable and based on integrated security solutions specified and proven by the leading car manufacturers in Europe and Japan."

Coverbox calculates the cost of insurance based on the driving habits of the customer, then fits a box to their car that will calculate the actual mileage.

The customer then receives monthly bills based on their usage.

"In summary, it will work very much like a monthly utility bill - the key difference, though, is that low risk drivers who use their cars little and in off-peak periods are not penalised by the actions or accidents suffered by higher risk drivers driving at higher risk times," Mr Dunn added.

"We believe a significant number of Coverbox customers will save a great deal of money compared to the cost of 'traditional' car insurance premiums."

James Harrison, chief executive of comparison website Insurancewide.com, said: "Coverbox could be a good deal for younger drivers with low mileage. This kind of scheme didn't work for Norwich Union because the take-up was lower than expected, possibly because drivers were wary of the Big Brother type tracking device.

"However, Coverbox's impressive claim that its own device will recover 98 per cent of stolen vehicles will attract great interest and it may be far more successful. It's also flexible in that there's no age restriction and you can specify likely peak and off-peak mileage.

"For older drivers with average mileage, there are no clear advantages through Coverbox and drivers should compare its offer very carefully with other providers by scouring the market online. Comparing like-with-like is the absolute key to getting good value, it's not just about the lowest price."

Norwich Union said it currently has no plans to bring back its own popular pay-as-you-drive policy.

The End of All-You-Can-Drive Insurance

A lot is being written, said and blogged about in terms of Pay-As-You-Drive insurance. Much of it is repetition of what has being said already, and Bordoff and Noel of the Brookings Institute have been well and truly quoted many times.

I came across a write-up by Rob Inglis in a blog called “The New Republic” which eloquently states the case again. What makes it worth mentioning though were: 
a) It has a catchy title for traditional car insurance: “All-You-Can-Drive” Insurance, and
b) It has a really good discussion going in the comments section.

There are a number of misconceptions that were only partially cleared-up in the discussion.

Rural people will be penalized:
Untrue. Pay-As-You-Drive (PAYD) will not use mileage to replace all other factors, but to make risk pricing more accurate by using mileage in addition to the current rating factors. So the fact that people live rurally is already factored into car insurance pricing. What PAYD does is differentiate between low mileage and high mileage drivers in the rural area.

Insurance companies would have done it already if it made sense:
Untrue. The Multiple Prisoner’s Dilemma is the major factor that keeps them from doing it. Read the post on 22 November. Other factors include systems and regulations.

Progressive patents keep insurance companies from doing it:
Untrue. The opinion of carriers in the US is that the patents do not pose a barrier to them doing PAYD. See the diagram of the poll conducted amongst 90+ carriers in a recent Webinar. The stated obstacles in the poll were 46% systems, 20% privacy concerns, 18% cost of telemetry, 14% state regulations, and only 4% patent infringements. See Exigen for details.

Hurting vulnerable people is lousy social policy:
Untrue, within context. Hurting vulnerable people is not good. But subsidizing one group of people (high mileage drivers) through charging another group more (low mileage drivers), while at the same time creating a nasty externality that is akin to charging a flat rate for petrol regardless of usage, is lousy social policy. I have sympathy for people who will pay more. But the problem should be viewed in full context.

Mileage does not relate to risk:
Untrue. Simplistically, if you’re not driving, you cannot make an accident. The curves are not linear, and the curves differ for different profiles of drivers. Data and experience will fine-tune exact pricing over time. But the basic premise is sound AND meaningful.

The cost of implementing outweighs the benefits:
Untrue. Two solutions exist already that do not rely on telemetry or ongoing inspections. One is Real Insurance and the other Milemeter. Even for telemetry based solutions the cost of the technology is rapidly decreasing, and the device types are cheap and easy to implement.

The full posting of the blog can be seen at The New Republic.