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February 06, 2006

Ever closer to PAYD

Pay-as-you-drive auto insurance keeps coming closer. There are now at least three different technology companies in the market with pay-as-you-drive systems. These are not yet insurance plans available to Cascadian consumers. They're products--little electronic gizmos that connect to GPS and/or wireless networks and/or the USB port on your home computer--that insurance companies can adopt to collect data for PAYD insurance plans.

Each product is a bit different and each has its own answer to privacy concerns. I'm not endorsing any of them.

My point here is the same one I made before: information technology, not lane-by-lane HOT lanes, is likely the shortest road to prices that tell the truth about driving.

A Waterloo, Ontario company is launching a pilot soon for its iPAID system.

An Atlanta, Georgia company is aggressively promoting its product called DriverScore.

And a third firm called Sensomatix reportedly has a product on the market, too, though its website doesn't yet describe it.

Getting the policy details right--protecting privacy and incentives for fuel-conserving vehicles--will be the giant issues in this space. Not whether the technology sweeps into the market.

State transportation and insurance agencies, are you listening?

Posted by Alan Durning | Permalink

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Comments

Getting carried away with the hard-sell on fancy electronic recording devices and big dreams of environmental management just gets us farther away from solving the fatal flaw in auto insurance - charging premiums by time units rather than odometer mile units. Accidents are the random effect of the total activity of driving. Every mile driven by an insured car produces a statistical but real cost that insurance must cover. That is a group cost, but how much each car's miles contribute to it can be measured by odometer and paid as that car's share. Companies now divide costs by the number of cars in a rate class to compute the premium that each car pays. The result is that cars driven less than the class average pay more for each mile driven than those driven more - a direct reversal of the risk cost they impose. The technology needed to correct this absurd and abusive system has been around for more than a hundred years and is now highly protected by state and federal law. Only when insurance customers can buy insured miles like buying gallons of gasoline will insurance cost statistics and the classifications based on them have statistical validity and drivers finally have control over how much they spend for the activity of driving. To understand how it works, see www.centspermilenow.org. What we don't need is more black box wizardry jerry-built on the present faulty system.

Posted by: Twiss Butler | Feb 6, 2006 8:43:13 PM

Twiss,

Thanks for your comment and for your long dedication to PAYD insurance!

I'm well aware of your advocacy for simple, low-tech approaches to PAYD. And I tend to agree with you.

But the insurance industry has never grabbed the simple odometer-based approach you and I favor. Lawmakers have been unwilling to do much to encourage them.

Meanwhile, technology is coming on the market that I think insurers will grab.

So let's focus on the opportunities and challenges these technologies bring.

Again, thanks for your pioneering work on this!

Posted by: Alan Durning | Feb 8, 2006 11:02:31 AM

Alan,

I wonder what beneficial opportunities and challenges these technologies promise to bring that could outweigh the disadvantages of maintaining the present system in a more expensive and complicated form. The question needing scrutiny is why insurers choose to use arbitrary mileage surrogates instead of accurate mileage data as the basis for cost classification. Geico's move in NJ to vary prices according to the occupation and income of the customer is just the latest example of a system more responsive to ad hoc marketing notions than actuarial soundness. Ironically, it is a system that guarantees market breakdown (See report: http://www.centspermilenow.org/633b-4522.pdf)

Twiss

Posted by: Twiss Butler | Mar 9, 2006 3:11:14 PM