August 16, 2004
That's the idea behind pay-as-you-drive car insurance (PAYD), an approach that would make buying car insurance more like buying gasoline: the less you drive, the less you pay. But despite studies indicating that mileage-based insurance makes sense from an actuarial point of view, insurers have been slow to adopt PAYD, in part because of technology and privacy issues. How would they collect accurate information on miles driven? And would consumers be willing to give that information up?
Progressive Insurance--long a leader in using technology to price insurance more accurately--will find out more about both those issues through a recently announced 5,000-participant pilot project in Minnesota. Called Tripsense, the program will use an an inexpensive plug-in device to record data about an individuals' driving, including time of driving and mileage, speed driven, and even acceleration and braking (which won't affect rates yet), with discounts for behaviors that indicate safer driving.
The customer can easily remove the box; download readings into a personal computer; and examine the data and potential insurance discounts. The customer can then choose to send the information along to Progressive, or keep it private. Unfortunately, discounts for low mileage are relatively small, but it's still step in the right direction. And if PAYD is adopted on a wide scale, it promises to reduce driving by 5 to 15 percent--a huge boon for society and the environment.
Posted by Elisa Murray | Permalink