What is this about?

This blog is focused on providing information on Pay As You Drive car insurance in Australia. If you find any information, papers, news articles or websites that we should add, please let us know!

Wednesday, October 29, 2008

Some coverage for Pay As You Drive in The Australian

The article below appeared in the Australian today.

Source: http://www.theaustralian.news.com.au/business/story/0,28124,24546649-5001942,00.html

A car insurance product

What's new | October 29, 2008

What is it? A car insurance product which the promoters say could significantly reduce a person's premiums.

Pay As You Drive from Real Insurance allows qualified motorists to pay only for the kilometres they plan to travel.

What are its features? Pay As You Drive allows motorists to cover their vehicles based on how far they drive. Motorists can buy kilometres and are covered until they complete that distance. Anyone driving less than the average for people with the same insurance profile should pay less than they would for traditional comprehensive car insurance. Those who qualify get comprehensive car insurance with a minimum annual premium and purchase insurance for the kilometres they expect to cover in that vehicle. Unused kilometres never expire -- they can be transferred year to year or be refunded and customers who are about to run out of kilometres can apply to purchase additional kilometres. Pay As You Drive reminds customers when they may need to top up their kilometre balance with a sticker for their windscreens and SMS messages to their phones. People who have not made a claim against any of their Pay As You Drive policies for three years in a row receive 10 per cent of the total premiums paid in that time. Similar insurance products overseas require policy holders to have their vehicles equipped with monitoring devices. Pay As You Drive in Australia relies on the customer reporting the odometer reading of the vehicle insured.

What are the advantages? Pay As You Drive is suited to people who drive to and from the train station or work close to home and perhaps use their cars on weekends. It also suits those who have a second or third car.

What are its disadvantages? Pay As You Drive is not for everyone. It works for people who drive less than average. Motorists who drive a lot are actually being subsidised by traditional car insurance, so Pay As You Drive won't work for them. Pay As You Drive is available only to drivers over the age of 25.

What does it cost? Pay As You Drive claims cost savings of "up to 60 per cent on car insurance per annum". A 29-year-old Parramatta man who owns a Mitsubishi hatchback would typically pay $981 a year for insurance, but if he only drives 5000 kilometres, he would pay $316 per year with Pay As You Drive.

For more details, visit  www.payasyoudrive.com.au

Tuesday, October 28, 2008

Webinar on Pay As You Drive Insurance on 5 November 2008 2pm ET

The National Underwriter, in conjunction with Real Insurance, Exigen Insurance Solutions and Tower Group is putting on a webinar on PAYD. The details are below:

  • Date: November 5, 2008
  •  Time: 2:00 p.m. ET

http://www.summitwebseminars.com/exigen/Pages/default.aspx

Pay Only As You Drive Insurance Coming Ready or Not

What Are the Business, Technology and Regulatory Realities You Need to Know?

 
 

Are you ready for the coming auto insurance revolution?

Low mileage driver interest in pay-only-as-you-drive insurance (PAYD) is growing fast, for many reasons. It will save most drivers money on their premiums. And it is environmentally responsible - a green product that creates incentives for driving less, resulting in less pollution, oil dependence and infrastructure cost. So why are some U.S. insurers moving fast while others are slow to act?

Get answers to the important questions:

  • What is the market?
  • Is consumer privacy an issue?
  • What are the business barriers?
  • What are regulators doing?
  • What are the technology options and barriers?

Plan your company's next steps toward a fast emerging new auto insurance product

Moving to mileage-based coverage as a term of insurance has rating and pricing implications and it challenges conventional policy administration, claims, billing and other systems. Find out how Real Insurance, a division of Hollard Australia, implemented the first PAYD product not requiring a monitoring device within customers' vehicles - a solution that avoids consumer privacy issues. Hear all sides of the issue and make your plan of action.

Featured speakers:

  • Roger Grobler, CEO, Real Insurance, a division of Hollard
  • Karen Pauli, Research Director, Insurance,
    TowerGroup

  • Fazi Zand, VP, Marketing & Business Development, Exigen Insurance Solutions

 
 

Thursday, October 23, 2008

Pay As You Drive wins best general insurance product in Australia “

Real Insurance won the best general insurance product at the ABF awards for Pay As You Drive. We're very pleased about this, particularly because the product was only recently launched. It is quite an honour to win the award against all other general insurance products in a very competitive market, and I think it recognises the fact that the product is truly innovative and a great deal for consumers.

Channel 9's Extra program has also filmed a segment on Real's PAYD over the last few days. Extra is Channel 9's Queensland based lifestyle program. The segment is expected to go to air over the next few weeks.

An excerpt from the press release following the award below:

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Pay As You Drive from Real Insurance, the first insurance product of its kind in Australia whereby qualified motorists pay only for the kilometres they travel, has won The Best General Insurance Product category at the Australian Banking and Finance Magazine Telstra Insurance awards.

Says Real Insurance CEO Roger Grobler: "Pay As You Drive gives people a fair go on their car insurance. We wanted to offer Australians a product which reflects large scale changes in their motoring habits and one which would accommodate these changing needs.

"We recognised that current car insurance is unfair to people who use their cars sparingly. The result is that Pay As You Drive offers people who drive less than the average for their age, gender and area to pay only for the kilometres they drive."

Grobler says that the way the current car insurance system is structured means that low-mileage drivers are simply subsidizing insurance costs for high-mileage drivers.

"We wanted to change that so if for example you drive to and from the train station, or work close to home, or you use your car a bit on the weekend, or you have a second or third car, it is likely that Pay As You Drive will save, in some cases quite dramatically, on your car insurance premiums," says Grobler.

The awards were mediated by a panel of leading insurance industry experts including former Suncorp Insurance boss, Diana Eilert, senior Moody's analyst, Wing Chew and top UBS analyst, Ralph Butterworth.

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Sunday, October 5, 2008

Smoke, Mirrors and Insurance Discounts

Insurance discounts, and in particular the 65% No Claims Discount, are used extensively by insurance companies to sell insurance. A lot of it is smoke and mirrors, because the "normal" price is not defined.

Here is a bit of a closer look:
If a seller of a product or service promises a discount of say 65%, what does that mean? Logically it means that there is a normal price, and that the receiver of the promise can pay 65% less than the normal price. So if the normal price is $100, the receiver only needs to pay $35. That is quite reasonable. It is also a good deal if the $100 was a reasonable price to start with. What if the original price (the $100) is not known? In other words, the seller promises that he is giving you a 65% discount, but there is no "normal" price? That is hardly a discount but rather a misleading sales promise right?

In the retail space (like clothes) the much used "Sale Now On" sales technique is regulated by requiring shops to have the merchandise in their stores for at least a number of weeks at the normal price, before they are legally allowed to claim a sales discount. So the merchandise had to be on the rack at $100, and for sale to the customers of the store for a period of time, before the store can discount the price to $35 and claim the 65% discount. That avoids the practice of getting merchandise in that should sell for $35, and then sell it for $35 and claiming a 65% discount.

Not so in insurance.

One of the most common practices in insurance is the "No Claims Discount", or "No Claims Bonus", where an insurance company would give you typically up to a 65% "discount" for not having had any claims for a period of time. Consumers take it quite seriously and also take pride in their NCD "status".

What happens in reality? Is there a "normal" price? Is there a $100 that was discounted to $35? Not really. Insurance has no "RRP", or Recommended Retail Price, as each insurance company takes into account a myriad of factors in calculating an individual's specific premium.

To prove the point:

  1. Take your insurance premium you are actually paying (let's say it is $700 a year). Your insurance company claims that they are giving you a 65% NCB. To do the maths, it works like this:
    "Normal" premium x ( 1 minus 65% discount ) = Premium you're actually paying
    so
    "Normal" premium x ( 1 minus 65% discount ) = $700
    to make the equation work:
    "Normal" premium needs to equal $2,000!
    Hard to believe.
  2. 90% of people are on a maximum NCD. That makes it difficult to believe that the maximum NCD is not the market price. With all the steps between a rating scale of typically 1 through to 6, it is hard to believe that the fraction of people (2%?) on a rating 6 is the "normal" price.

The advert below (large Australian insurer) has been used extensively in print, on TV and is still used online. Add up the discounts. It comes to 105%! So they're going to pay you 5% of the "normal" price if you're really good? I don't think so.

Clearly the promises are all smoke and mirrors. If you read the fine print, it says that the 20% loyalty discount is available after 15 years. And also: "For customers with a No Claim Discount or Bonus, these are applied after the Multi-Policy Discount and Years of Insurance Discount." Not sure what that means? Clearly the marketing people at this company are not very good with maths. Or maybe they are, and the rest of us isn't?