Traffic on New York's Fifth Avenue. (Richard B. Levine/NEWSCOM)
‘Pay-as-you-drive’ insurance catching on
By Eoin O'Carroll | 07.28.08
Insurers are beginning to offer auto-insurance plans that charge motorists based on the number of miles driven.
Some of these ‘pay-as-you’ drive programs, which involve tracking the vehicle with an on-board monitoring device, would also charge drivers based on how abruptly they brake and accelerate.
Two large insurers currently offer pay-as-you-drive discounts. Progressive’s MyRate program uses a device plugged into the vehicle’s diagnostic port that tracks the number of miles driven, the time of day, and how aggressively the vehicle is driven. Every six months the driver sends the device to Progressive, which then calculates the insurance rate. The company says that, for each renewal term, a driver could see a savings of up to 40 percent based on his or her driving behavior. Unsafe drivers would pay more, says Progressive.
Each state has its own insurance rules, so this program is not available everywhere in the US. MyRate is currently open only to drivers in Alabama, Minnesota, Oregon, and Michigan. Starting next month, it will be available to drivers in New Jersey, the state with the nation’s highest insurance rates.
The insurer GMAC has partnered with OnStar to create a Low-Mileage Discount program. Under this program, only the odometer readings are sent to the insurer, which calculates rates based on miles driven.
A report by the Brookings Institution’s Hamilton Project estimated that if all motorists paid for accident insurance per mile driven rather than in a lump sum, driving would decline by 8 percent nationwide. Such a reduction, say researchers Jason Bordoff and Pascal Noel, would net society the equivalent of about $50 billion to $60 billion a year by reducing driving-related harms, and would reduce carbon dioxide emissions by 2 percent and oil consumption by about 4 percent.
But privacy advocates are concerned that monitoring devices could give up too much information about a driver. In a story about a proposed bill in California that would allow pay-as-you-drive insurance plans, the LA Times quotes Paul Stephens of the Privacy Rights Clearinghouse in San Diego:
“It’s going to give insurance carriers your exact location at all times and could wind up being subpoenaed in divorce proceedings and other lawsuits,” he told the Times.
Newark, New Jersey’s Star-Ledger quotes Charles Samuelson, the executive director of the ACLU of Minnesota, who worries that such devices may nudge us closer to a surveillance society.
“We see this as kind of a creeping abduction of people’s data,” he said. “Basically, once they collect that data, it belongs to the insurance company. That’s a big problem.”
Progressive’s [user-based insurance manager Richard] Hutchinson admits privacy has been a concern since the program started with a pilot project in 1999. He said the devices do not include GPS locators that would enable the company to track every movement. “The primary concern that comes up is: ‘Are you tracking my whereabouts?’” he said.
A gas-price-relief bill before Congress includes a provision that would encourage car-insurance policies that reward low-mileage drivers with low premiums.
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2. Chris Frey | 07.29.08
As a law-abiding individual, I have no concerns providing my whereabouts at any given time. As long as these programs are voluntary, then people can always opt-out of participating. I have no issue with any law enforcement agency being able to get a subpoenae to determine if I was in such-in-such neighborhood at such-in-such time. Heck, between purchases made with debit cards, toll collections, security cameras and what-not, there is a lot of survelience alredy going on. And the only time anyone is likely to check these is when something has occured, be it a crime, an accident or other triggering event.
As to the previous posters note regarding bad driving behaviors that GPS and “black box” technology will likely not be able to identify, I agree. I believe that Progressive is using one of the most attributable variables to determine any drivers potential for being in an accident - miles driven, and giving this some weight in determining the premium. People may not agree that miles driven is a good indicator of driving safety, but in regression analysis after regression analysis, it is always a top coorelated indicator, along with, believe it or not, your credit rating. Let the shreaking begin ;-)
Don’t get me wrong, as long as it is voluntary, I am all for obtaining a discount by providing some additional information. On the other hand, I personally never use anything but cash at drugstores, because I don’t want give some gigantic health care database information about my cold medicine or birth control purchases. Same for purchases at a bar. Just prefer certain things stay private.
3. Eugene Hayob | 07.29.08
These types of programs would be voluntary so you would have to agree to the information being transmitted to the insurance company. If the idea is that you want to lower your rates because you don’t drive that much this is fine but by the same token the insurance company provided they disclosed that it would be using information on speed and braking as part of the rating scheme should be allowed to use that information to adjust how much you pay. Short distance at 25 miles over the limit is not what I would call safe and deserves to pay more than short distance at or reasonably under the speed limit. The idea that information from this type of rating scheme would be available to any other purpose is paranoid and as it happens the use of it this way when not included in the contract would be actionable. If you choose this type of plan you are giving up some privacy in exchange for lower insurance premiums, up to the individual to determine if this what they want to do.
4. Pat Beranger | 07.29.08
Mr. Samuelson never explains why this is such a “big problem.” We have become a data driven society - surely if sharing data was problematic, there’d be numerous examples that could be offered to make the case. Absent the ability to prove a point, we get the same tired “slippery slope” argument.
5. K at Watchdog | 07.29.08
Although some states already have staunch regulations in place to prevent the institution of unfair or discriminatory insurance rates (e.g. California), no region in the U.S. should have to compromise substantial privacy in the name of a supposedly greener ideal. Firstly, many of the insurance companies lobbying for the nationwide implementation of PAYD are inadequately prepared to truly promote less driving on the part of the consumer. Although claiming to be for a “greener” America, a large number of companies have created only one tier to address the miles driven by their insured masses, essentially creating a arbitrary yearly mileage number, such as 7500, and then offering discounts for those who drive fewer miles than this and offering no such refund to those who drive more. This sort of rate determination creates a situation where individuals who are not in close proximity to the tier standard feel no incentive to actually curb their mileage. For example, a man who only drives 4,000 miles last year will not feel any qualms about driving to the supermarket around the corner, perhaps raising his miles driven to as much as 5,000, because he understands that for him to reach the 7,500 tier would be virtually impossible. Likewise, a person who drives 9,000 miles annually would have to cut their driving by 1,500 miles to qualify for a decrease in their insurance rates, and would not experience any incentive to curtail their driving habits (except perhaps in response to rising gas prices). Also keep in mind that stopping and starting quickly may be signs of good driving if one is an area, say, with many young kids playing in the street, or frequently uses a freeway ramp that is extremely short and where to be safe, one needs to reach top speed quickly. There are a lot of issues with PAYD that have yet to be ironed out or discussed, including pre-1996 cars being incompatible with the technology, which automatically disqualifies 30% of cars on the road (many owned by lower income families, meaning socio-economic discrimination on top of everything else) in America today from having the opportunity to “greenfiy” their driving habits. Miles driven should be a vital part of determining insurance rates, but why are insurance companies unable accept something as simple as a yearly odometer verification (which would eliminate all privacy concerns and snafus and which would be just as accurate as any GPS device)?
6. Jim Hendry | 07.29.08
A solution that might work is to have the driver install a GPS tracking unit into their vehicle and automate a report every month to the insurance company and they will know how many miles you have driven. You get full control over tracking your own vehicle and they get just what they need.
A few years back I had my car stolen and didn’t have a GPS tracking device in my car. The car was never recovered.
My insurance company gives me a 25% discount for having a GPS tracking device installed and if my car is ever stolen again, I will track them down and have them arrested.
7. David Albers | 07.30.08
I think we are seeing the GPS-civilian monitoring system(PAYD) in its infancy.
I’m concnerned about it. Look at how Google has evolved with its algorithmns over the last ten years. You can do a search and when you land on a page with adsense, it’s uncanny how close those ads relate to things I am interested in.
How Google relates to PAYD is that once this sytem is plugged into our cars (as innocent as it seems now) it will quickly evolve into a another tracking device of our behavior.
Terrorists? Enemies of our country?
8. John Fontenot | 08.01.08
I sell this stuff and can tell you now that in this state of Louiaiana the cost of liability insurance is directly related to attorneys with their lawsuits. We desperately need to curb this with a more conservative approach to an actual and provable loss system.
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1. Rick Evans | 07.29.08
“He said the devices do not include GPS locators that would enable the company to track every movement.”
He forgot to mention TODAY. Tomorrow, if this device is widely adopted by non-thinking consumers GPS will likely be included in the future. GPS fast finding its way into cell-phones and offered as a feature instead of an invasion of privacy. GPS’ were 2007’s hot X-mas toy. Progressive and its copycats can always argue, “Consumers already have GPS’ in their personal transportation and don’t worry about invasion of their privacy.”
I wonder how Progressive’s algorithm will deal with feckless two foot drivers who drive slow in the left lane with brake lights more off than on?.