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Australian provider of, well, pay as you go car insurance - seems like a good idea, other things being equal

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Privacy Concerns with Telematic PAYD solved by Real’s PAYD

Real Insurance's PAYD product does not depend on telematics. It solves the problems created by telematics, as discussed in the article below:

Excerpt:

California regulators recently passed Pay As You Drive insurance legislation that would allow insurance companies to place tracking devices in cars and calculate rates according to actual mileage driven. Not surprisingly, privacy advocates are deeply concerned about the implications of the new technology.

"Where I drive, when I get there and whether I stop on the way is not the business of my insurance company or any other corporation who wants to place eyes in my car," says Carmen Balber of the group Consumer Watchdog.

Source: http://www.freshnews.in/new-location-technologies-worry-privacy-advocates-2-52109

New location technologies worry privacy advocates

Millions of people around the planet now carry personal tracking devices with them every day. Their mobile phones broadcast their location all the time. Tech firms and marketers see it as a huge opportunity, but privacy advocates are squirming at the implications.

The worries grew this week.

Web giant Yahoo has unveiled an application called Fire Eagle that allows users to easily share their location via their mobile phone with friends, Internet programmes, their home automation system or anything else that's connected to the world's vast digital net.

Yahoo has made the programme freely available to any developer who wishes to use it. A tour-book company could sell online tours that self-narrate over the phone as users move from landmark to landmark on a visit to London.

"For years, we have been talking about location-based services as the next frontier of the Internet," says Internet development consultant Tim McCullen. "Fire Eagle is a huge step in making that happen."

Yahoo didn't invent location-based services. GPS navigation devices already offer drivers numerous options. But the feeling is that with devices like the iPhone spreading the mobile Internet, the sector is about to take off.

Already 50 programmes are incorporating the service into their applications.

A start-up called Loopt allows you automatically broadcast your location to selected recipients on a real-time basis. Blogging platform SixApart allows users to automatically geo-tag their locations, and the Doppler social network allows frequent travellers to share their locations.

Of course, there are more obvious uses for LBS programmes such as finding the nearest business or service, such as an automated-teller machine or restaurant, navigation aids, and the tracking of people, vehicles or traffic.

But the major beneficiaries could be advertisers, who are drooling at the prospect of sending promotions to mobile users based on their locations - alerting them to special discounts at nearby stores, for example.

The use of location-based services is moving beyond the Internet.

California regulators recently passed Pay As You Drive insurance legislation that would allow insurance companies to place tracking devices in cars and calculate rates according to actual mileage driven.

Not surprisingly, privacy advocates are deeply concerned about the implications of the new technology.

"Where I drive, when I get there and whether I stop on the way is not the business of my insurance company or any other corporation who wants to place eyes in my car," says Carmen Balber of the group Consumer Watchdog.

Yahoo counters privacy concerns by noting that Fire Eagle differentiates itself from other services by the ease with which it allows users to control what information is released about them and to whom.

But that's of little comfort to privacy advocates who note that most people do not delve down into software programmes to customise features.

"For individuals who do not want their location to be known, these services could be harmful," said Beth Givens, director of the Privacy Rights Clearinghouse.

Critics wonder if users will realise that copies of their data will be stored by virtually every application that connects into Fire Eagle as well, making it extremely difficult for anyone to completely erase their tracks.

Telecom expert James Middleton wonders whether the attraction of location-based services may be overhyped, pointing out that people who go to a restaurant generally won't wait until they are standing on an unfamiliar street corner to decide where to eat.

"The industry has been wandering around in circles looking for killer services and applications that might not exist," he said. "As the joke goes, a really useful LBS application would be one that could point you to a really useful LBS application."

The Next Great Innovation in Auto Insurance: Pay As You Drive

by Erik Sahagian, VP, Better World Insurance

Source: http://www.betterworldclub.com/articles/LeadStory_PAYD_May2207.htm

Better World Club recently supported a Massachusetts proposal to jump-start Pay by the Mile Auto Insurance for the second time. Here is an excerpt from the statement of support:

Some have chosen to falsely frame the recent "Pay as you Drive" proposal as an assault on freedom. In fact, the opposite is true. PAYD is quite simply an attempt to more fairly price that necessary evil we know as auto insurance. By charging a per mile rate, insurance would join an infinite list of products from ice cream cones to xylophones which are paid for and consumed on a per unit basis. Would these critics of PAYD have us all pay the same, no matter how much potato salad or heating oil we consume? Is that how a market functions? PAYD simply fine tunes the long standing and sensible low mileage discount feature already part of many states' auto rating formulas, bringing it from a multi-tier pricing structure, to a per mile based system. Other factors, such as theft and accident rates, would still have a place in the equation.

Would this tweaking of the existing mileage discount have an effect on overall driving habits? Perhaps. Perhaps not. Certainly some drivers would pay more and others less, and some might alter their driving habits, but if the same amount of accidents were to take place, the net amount of premiums paid by drivers to the industry should be the same.

However, if one were to assume this change in pricing philosophy were to lead to less driving overall, what would be the ramifications? In addition to reductions in emissions, one could expect congestion to drop off as well. This is where PAYD really gets interesting. All drivers, good, bad, and ugly are less likely to experience accidents on less congested roads, and will likely spend less time idling in traffic. Thus this change in pricing potentially kicks off a chain reaction, in which fewer cars on the road results in fewer accidents, which in turn brings lower rates. Less time stuck in traffic means higher MPG and reduced travel time as well, making a win/win/win situation a legitimate possibility.

Pay As You Drive offers no guarantees these changes will materialize, but at the very least promotes freedom by allowing a greater hand for market forces in the setting of the rates consumers otherwise have very little control over. Maybe some would use this pricing change as the catalyst for an "environmentally friendly" vehicle, occasional telecommuting or ride sharing. Many others simply don't have much, if any, flexibility. Life is a series of trade-offs. But the overall effect would almost certainly diminish driving to some degree. There can be no dispute that less collective driving would naturally bring about lower individual rates. Industry resistance to this eminently logical idea serves only to feed the conspiratorial theories of those industry critics who charge that insurance companies cherish high rates because they make their money not by efficient underwriting, but by investing (your/their?) money and, therefore, simply look to maximize the "assets under management" (AKA premiums) in order to maximize profits (see "The Invisible Bankers" by Andrew Tobias).

The time to bring auto insurance pricing closer to the real world is long overdue, and by adopting the Pay As You Drive proposal, the legislature has a golden opportunity to expand the role of market forces. It is clear that those who drive less should pay less. Paying for what you use and not for what you don't is more than fair; it's the basis of the market system. That is the essence of the PAYD plan. Pay As You Drive is a common sense idea whose time has come.

Pay-As-You-Drive Insurance Comes to Brookings

By Dean Baker

Source: t r u t h o u t

Dean Baker's ZSpace Page

Many of the ways to reduce greenhouse gas emissions will require major changes in behavior and/or impose serious costs. However, there is one mechanism that could lead to substantial reductions in emission with no cost: pay-as-you-drive auto insurance.

The basic point is simple. With current policies, most people will pay the same amount for their insurance whether they drive 500 miles or 50,000 miles. However, their risk of being in an accident is clearly greater the more miles they drive. If we can have insurance prices reflect the increased risk, it would mean both better insurance pricing and giving people a substantial disincentive to drive.

The impact would be large. The average cost of insurance per mile driven is close to 8 cents. This means that if insurance were paid on a per mile basis, for a car that gets 20 miles to a gallon, pay-as-you-drive insurance would provide the same disincentive to drive as a $1.60 a gallon gas tax. This can easily lead to reductions in gas consumption and greenhouse gas emissions from the auto sector of 10 percent or more.

The great part is that it doesn't even raise driving costs on average, it just makes a fixed cost - the annual insurance premium - into a per mile cost. Since people will now presumably drive less and therefore have fewer accidents, they should actually end up paying less on average for insurance.

I first wrote about this a decade ago with my then colleague at the Economic Policy Institute, Jim Barrett. Others had written about pay as you drive even earlier, such as Patrick Butler with the National Organization for Women, Daniel Khazzoom at San Jose State University, Todd Littman at the Victoria Transport Institute and Aaron Edlin, now at Berkeley. The reason for mentioning pay-as-you-drive insurance now is being discussed in the mainstream of the economics profession. Two researchers affiliated with the Brookings Institution recently wrote a piece touting the merits of pay-as-you-drive insurance.

This is great news. It means Congressional staffers and potential White House political operatives can now take the idea seriously. Environmental groups, who are more fearful of new ideas than global warming, may also be persuaded to consider it as a policy option. Now that a pillar of intellectual establishment like Brookings has certified the respectability of pay-as-you-drive insurance, it means it is at last a viable political option.

It's great to see the Brookings crew can occasionally pick up a new idea. Of course, pay as you drive is very safe, as new ideas go, since it doesn't threaten any powerful interest groups. Insurance companies can make just as much money selling pay-as-you-drive insurance as selling their current polices. The oil companies may be unhappy, but they can no more prevent pay-as-you-drive insurance than they can stop people from driving more fuel-efficient cars.

It would be interesting to see if the Brookings gang could ever be persuaded to examine some policy proposals that actually did ruffle some powerful feathers. For example, this group of hard-core "free traders" has never been interested in freer trade in the area in which the United States stands to benefit the most, health care. If our trade policies made it easier for foreign doctors to come to the United States , or US citizens to take advantage of high-quality, low-cost care abroad, the potential gains would be enormous. Of course, free trade in medical care would hurt the insurance industry and highly paid medical specialists; that's a lot more difficult than going after textile and autoworkers and the other losers from recent trade agreements.

Speaking of protectionism, how about considering more efficient alternatives to patent-financing of prescription drug research? Without government-imposed patent protection, we would pay less than $50 billion a year for drugs that now cost us $250 billion a year. If direct funding for research sounds too radical, how about just paying for the clinical trials where the worst industry abuses occur? But this proposal would anger the pharmaceutical industry.

In a year in which the big Wall Street banks have been driven to the edge of bankruptcy or beyond, by executives who have pocketed tens of millions of dollars in compensation, one would think economists might be concerned about the obvious agency problem in the system. Perhaps, they would try to rein in a sector of the economy that is clearly out of control, imposing a small financial transactions tax that could raise more than a trillion dollars over the next decade. This one would upset the financial industry, which happens to be a big source of money for the Brookings crew.

No one expects a pillar of the intellectual establishment like Brookings to be a major source of cutting-edge ideas. It is encouraging that they can occasionally pick up an idea that has been developed on the fringe, like pay-as-you-drive insurance. It's too bad the power of major industry lobbies makes this such a rare occurrence.

Sydney-siders increasingly vulnerable to oil price and mortgage cost pressure

MORE than 40 per cent of Sydney's suburbs have become increasingly vulnerable to high oil prices and mortgage stress in the past five years, according to a study to be released today by Griffith University.

While those on the far-western fringe of Sydney are the most car dependent and burdened by household debt, a new wave of vulnerability at the bowser has washed through middle-ring suburbs such as Liverpool, Hurstville and Blacktown.

While vulnerability to oil prices declined in some pockets of the city, for example in the northern suburbs between North Rocks and Pymble, big areas became more acutely exposed to high prices. Parramatta and Blacktown increased on the scale, as did other areas such as Penrith, Hornsby, Mona Vale, Sylvania and La Perouse.

The study, Unsettling Suburbia: The New Landscape Of Oil And Mortgage Vulnerability In Australian Cities, assesses the way car use, income and mortgage repayments combine in the suburbs of each capital city.

Based on the 2006 census data, the research by Jago Dodson and Neil Snipe found an increasing number of Sydney suburbs were becoming "oil vulnerable".

"In Sydney high oil and mortgage vulnerability is distributed across much of the city's western suburbs, including Hebersham, Green Valley, Cabramatta and Canterbury in the mid and outer west," the report said.

"The number of areas in which oil and mortgage vulnerability increased over the 2001 to 2006 period far outweighed those in which oil and mortgage vulnerability declined," the paper says.

While people in far outer suburbs remain highly exposed to debt and car-related costs, they have been "joined by increasingly vulnerable neighbouring middle suburban areas".

About 18 per cent of Sydney's suburbs have become less vulnerable, the study finds. But this is eclipsed by those areas worse off, as "41 per cent saw their oil and mortgage vulnerability worsen between 2001-2006".

The study relied on an index created by the researchers dubbed VAMPIRE - vulnerability assessment for mortgage, petrol and inflation risks and expenditure. It combines census data on the proportion of people in each district that commute to work in a car, households with two or more cars, the median weekly household income, and the number of households being bought through a mortgage.

Big swathes of Sydney are already changing their travel patterns in response to rising petrol prices, by switching to public transport in record numbers and cutting back on non-essential car trips.

The study says the wider effects of recent oil rises are yet to be felt. "The full impacts of the dramatically higher 2008 fuel prices will probably not be seen until the early years of the next decade. In this context the problem of household socio-economic vulnerability and exposure to the impacts of higher fuel prices and mortgage interest rates remains highly relevant."

The authors say state planning policies have often contributed to the increasing social isolation of many suburbs where people rely increasingly on cars.

"The problems of suburban infrastructure deficits, especially in public transport, reflect the consistent failure of state governments to expand infrastructure to keep pace with the rate and scale of land development," the paper says. "These problems have been exacerbated by the planning of suburban areas around automobile travel."

As a result of housing, employment and transport planning in Sydney, the poorer communities carry the greatest burden of oil stress. "Households in middle and outer suburbs face higher levels of car dependence and fewer alternative travel options than those in the inner areas … This means that the costs of higher fuel prices will be borne most heavily by those with the least capacity to pay."

Source: Sydney Morning Herald, 11 August, by Linton Besser, Transport Reporter

Australia's Lifestyle Revolution

Excerpt:
"That lead me to my next encounter and potentially the most dramatic weekend story. A senior insurance executive told me that he was puzzled by the latest trends in car insurance. It was too early too tell (“come back in three months”, he said) but there were signs that a lot of people were locking up their second car and using it only when they had to. Accordingly, they were not comprehensively insuring it."

Article
I had one of those weekends where I kept running into people with fascinating perspectives on the looming acceleration of the economic downturn. My conclusion is that the early indicators we have seen are the forerunner of a much steeper downturn which will unfold over the next six months.

There is no doubt interest rates will fall. However, there are also signs that a legacy of this downturn may be dramatic lifestyle changes.

My first encounter was with a national display home builder and marketer who told me that his current sales were down only marginally but that attendances at his display villages were down 40 per cent in Queensland and Victoria.

He had checked with his rivals and found they were having a similar experience. In NSW it has been a disaster for a long time. Those lower numbers will almost certainly translate into a large fall in new home orders and, later, in building. What surprised the builder is what is happening in Queensland. He had believed for a while that Victoria was too strong, but had expected Queensland to hold.

The obvious cause was that the combination of higher interest rates, a credit squeeze, a very tough time for contractors, plus higher food and fuel prices that were slashing demand for new homes. But a rather unexpected reason bobbed up – people were not driving their cars at the weekend unless they really had to.

That lead me to my next encounter and potentially the most dramatic weekend story. A senior insurance executive told me that he was puzzled by the latest trends in car insurance. It was too early too tell (“come back in three months”, he said) but there were signs that a lot of people were locking up their second car and using it only when they had to. Accordingly, they were not comprehensively insuring it.

If that turns into a lifestyle change then we are in for a enormous blow to all sectors of the motor industry – makers, retailers, toll roads and repairers. It will transform public transport. By coincidence, in Victoria over the weekend the local transport minister was explaining how the weekend use of buses had skyrocketed. These building, insurance and bus anecdotes may be early indicators of an unprecedented lifestyle change.

Later, I ran into some Harvey Norman people who said they were enjoying the pre-Olympic boom in TV sets, but all the signs were there for a steep fall in activity.

A major social organisation which is supported by a large number of contractors reports that its annual dinner dance, which is normally rushed, sold less than 30 tickets – break even is about 160. The event was cancelled.

In Victoria the slump is being accentuated by the looming dramatic rise in private school fees in 2009 after Premier John Brumby handed out double-digit pay rises for key teacher classifications, but gave no extra money to private schools. Kevin Rudd has not come to the party.

What people on the edge are doing is budgeting and cutting down all unnecessary expenditure and this will show up in some very dramatic declines in the next six months.

Source: Business Spectator, written by Robert Gottliebsen

Real Insurance's new product

Real Insurance now offers Pay-As-You-Drive car insurance in Australia. Under their product consumers are trusted to report their odometer reading at the beginning of the policy term and purchase a certain number of kilometers. Odometer readings are verified if there is a claim, giving motorists an incentive to be accurate (false odometer readings void coverage).

Link to their website:
www.payasyoudrive.com.au