Pay As You Drive

Contact details in India

2011-04-11T22:32:00.001+10:00

Hi everyone

We have now been in Hyderabad for all of one week. We have been blown away by the generous support we have received from a large number of people, including a house to stay in, office space, and a lot of help with advice (from as far as NYC). It has made it significantly easier, and we are making great progress with settling in. We may even secure a long term house tomorrow.

We are still weighing up getting a Mahindra Xylo (100% Indian) versus a Toyota Innova. We think we should drive an Indian car in India. What do you think?

The kids are settled into school, and loving it. A true international school with 25 different nationalities. The most exciting part is the bus trip. Zoë (our 4 year old) was up since 4am this morning in excitement about going on the yellow school bus...

Anyway, I now have a mobile phone number, which means I can send out updated contact details. That is the purpose of this email. Please find attached new contact details. All my existing email addresses remain in place, it is basically the physical location and phone numbers that change.

I will be in Sydney from 18 to 22 April for Hollard meetings, and again 30 May to 4 June for Real Insurance meetings.

Kind regards

Roger

This e-mail, including attachments, is intended for the person(s) or company named and may contain confidential and/or legally privileged information. Unauthorised disclosure, copying or use of this information may be unlawful and is prohibited. If you are not the intended recipient, please delete this message and notify the sender.

Roger Grobler.vcf Download this file

Roger Grobler
roger.grobler@gmail.com
+919908732596

roger.grobler@realinsurance.com.au
+919908732596

Posted via email from Real Insurance

Contact details in India

2011-04-11T22:31:00.001+10:00

Hi everyone

We are still weighing up getting a Mahindra Xylo (100% Indian) versus a Toyota Innova. We think we should drive an Indian car in India. What do you think?

I will be in Sydney from 18 to 22 April for Hollard meetings, and again 30 May to 4 June for Real Insurance meetings.

Kind regards

Roger

Roger Grobler.vcf Download this file

Roger Grobler
roger.grobler@gmail.com
+919908732596

roger.grobler@realinsurance.com.au
+919908732596

Posted via email from Pay As You Drive

Car insurance and home insurance media coverage

2010-04-19T14:40:00.001+10:00

An article appears in today's Sydney Morning Herald online with coverage of home insurance and car insurance in Australia.

Bina Brown, the author, discusses the state of home insurance and car insurance in today's market.

Brown states that "according to the Insurance Council of Australia, at least one in three home owners is underinsured" for their home insurance.

Car insurance premiums are also discussed, with Brown explaining that you can usually get a good deal if you shop around for your car insurance.

The benefits of Pay as you drive car insurance, from Real Insurance are also mentioned.

You can read the full article online at smh.com.au

Posted via web from Real Insurance

Car insurance. In case you need inspiration.

2010-04-16T14:04:00.001+10:00

It is photos like these that always motivate me to check my car insurance is in order.

Thankfully most of the roads in Australia are much safer than those pictured in these amazing photos courtesy of oddee.com

Guoliang Tunnel Road in China

Trollstigen in Norway

Stelvio Pass Road in Italy

However, as a car insurance company, we know that there are some very dangerous roads in Australia.

ABC Online has more info on the most dangerous roads in Australia.

For more info on car insurance from Real Insurance, head to http://www.realinsurance.com.au

Posted via email from Real Insurance

Australia, the curse of cars and Pay As You Drive insurance

2010-03-01T14:32:00.001+11:00

An article appeared a week and a half ago by Gail Broadbent with the title "Premier must lift the curse of the cars". It talks about the costs to society of people using cars.

Pay As You Drive Insurance is estimated to reduce driving by 8-12%. The reason for this is that traditional insurance pricing for cars is like an all-you-can-eat buffet. You pay once and then drive as far as you want. This is not equitable, not smart and is in fancy terms an negative externality, which means people drive more than they would if they were paying fairly for car use.

There is a fair bit to be saved by people switching over to Pay As You Drive. Our customers at Real save on average 30%, and many up to 70% of their annual car insurance bill. Very few days go by when someone does not tell me how fantastic the product is and how much they saved. It is a great product for people who drive their cars less than average.

The savings for the country from widespread adoption of Pay As You Drive as a pricing mechanism is staggering. Assuming a 10% saving, and using the figures in Gail Broadbent's article:

Saving of $2.1bn in congestion costs
160 lives saved, that are lost today
3,000 serious injuries avoided
$1.8bn in costs of car accidents

Whatever the numbers are, the impact is huge.

The full article below. Original on this link.

Premier must lift the curse of the cars

GAIL BROADBENT

February 19, 2010

Comments

Australia has become one of the most car-dependent nations, and Sydney is probably its most car-dependent city. Cars are expensive, one of the least cost-efficient methods of moving people from one place to another. We use 12 to 15 per cent of our collective wealth to pay for it. By contrast, cities that have strong rail networks, as many European cities do, use 5 to 8 per cent of their wealth on transport.

With oil resources dwindling and climate change bearing down on us, we are not well positioned for the future.

But with the Christie report, the NSW state government has a golden opportunity to turn things around and secure a sustainable transport future for Sydney.

The report's primary aim was to show how we can have a workable transport system that will allow Sydneysiders to get around in a cost-efficient way, in less time than it does now and with fewer hidden costs - including social ones - than the system we have now.

The transport policies of successive state and federal governments have left us with massive hidden costs.

One big cost to our community results from congestion on our roads. Across Australia, this has been estimated by the federal government at $21 billion - and that was just for 2006.

Sydney has a quarter of Australia's urban population; the cost burden for the people of NSW is massive. It comes not only in wasted time and fuel but in productivity losses. Every time you get in a plumber or other tradesperson, you pay for that lost time in higher charges. The plumber can do fewer jobs in a day, meaning more people in that trade need to be trained and on the road every day.

Another cost is the road toll. Every year about 1600 Australians are killed in motor vehicle accidents and 30,000 more are seriously injured. Every year the government delays improving public transport, or establishing safe cycleways, means avoidable deaths are added to the toll.

The federal government's infrastructure department found that car passengers were 10 times more likely to have a serious injury than those in trains, based on distance travelled. It estimates that car accidents cost our community $18 billion a year.

A third cost is health. Encouraging walking and cycling for short journeys would be a cost-effective way of tackling the obesity epidemic which is fuelling diabetes, heart attacks and strokes.

These ''externalities'' - air and noise pollution, road accidents, physical inactivity and the contribution to greenhouse gases and global warming - are costing us dearly. That's before we consider other social impacts such as social exclusion for those who don't drive and have inadequate access to public transport.

We need to update our thinking about transport so the costs are no longer hidden and so they reflect what fossil fuels are really costing us. The federal government's fuel excise, for instance, is the fourth-lowest in the world, according to a Treasury report on Australia's future tax system. It goes nowhere near paying for all the hidden costs of road transport.

To do so, we should be paying fuel excise of $1.33 a litre - 3½ times what we pay now. The politics of that mean it's unlikely to happen, but we need to go some way towards reflecting the real cost to society of using fossil fuel-dependent cars. The revenue from removing fossil fuel subsidies should be used to provide better, safer, more sustainable transport.

As a nation we urgently need to prioritise investment in the public transport, cycling and walking networks of our cities. We need governments to look ahead 10 and 20 years and help us make the transition away from oil dependency, with all its hidden costs, towards a sustainable transport future.

In NSW, the Christie report provides a chance for our new Premier to show us what she is made of, and give us a vision of which we can all be proud. She could start by investing in a program to maximise the opportunities for people to use public transport and get rid of the second car.

For when a family gets rid of its second car and puts the savings in superannuation, they can save more than $750,000 over a working life. Think of the benefit to people, communities and the economy of just that switch.

Gail Broadbent is the Australian Conservation Foundation's sustainable transport campaigner.

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Real Pay As You Drive wins climate award

2010-02-02T06:04:00.001+11:00

The Blue Tongue beer company ran a great billboard campaign a year or so ago. The tagline read something like: "We never believed in awards, until we won one...". At Real we feel the same way. We don't really believe in awards, but we love getting them! This one is I think my favourite so far, as it recognises the impact that Pay As You Drive can have on the environment.

Real Insurance wins Best Climate Business Award

Real Insurance received the 2010 Money Magazine Best of the Best Climate Business Award. The Best of the Best awards are now in their ninth year with Real previously winning in the Cheapest Car Insurance category.
Real Insurance has also recently been awarded with:

·         The 2009 Celent Carrier Award for Innovation
·         The AB+F 2009 Best General Insurance Product award
·         The 2009 Money Magazine Cheapest Car Insurance award
·         A Cannex Canstar Award for Innovation
·         The AB+F Direct Marketing Campaign award

Real Insurance was honoured with the Climate Business award due to its innovative Pay As You Drive car insurance product, which rewards customers for helping the environment by driving less. Pay As You Drive from Real Insurance, is the first insurance product of its kind in Australia whereby qualified motorists pay only for the kilometres they plan to travel.
Real Insurance CEO Roger Grobler said, “Current car insurance pricing is inefficient and unfair. Drivers who are similar in respect of age, gender, location and driving safety record and who use their cars sparingly to help the environment should not have to pay the same as their neighbour who may be driving four or five times the distance.

Environmentally conscious motorists, who are cutting down on driving their cars in response to climate concerns should be rewarded for driving less.

It was against this background, that we felt the time was right to offer a robust, comprehensive motor insurance product for which customers pay only for the kilometres they plan to travel.”

Grobler continued, “A study conducted by the Brookings Institute in Washington last year found that introducing pay-as-you-drive insurance would generate an eight percent saving in CO2 emissions, nearly two-thirds of households in the US would have lower premiums and the average savings for that group would be $276 per vehicle per year.”

However, Grobler points out that Pay As You Drive is not for everyone.

“Pay As You Drive is ideally suited for people who drive to and from the train station, or work close to home, and maybe use their car a bit on the weekend. Anyone driving less than the average for people with their same insurance profile will pay less than ‘traditional’ comprehensive car insurance.

We want to give climate change conscious drivers a fair go. Pay As You Drive reflects large scale changes in motoring habits and in so doing, accommodates the changing needs of motorists,” says Grobler.

Recognising that these changing motoring habits reflect people wishing to lower their carbon footprint, Pay As You Drive has partnered with Greenfleet, a government approved greenhouse gas reduction initiative to offer motorists the option to offset their car emissions with a one off tax deductible donation which will assist in the planting of trees. This is just one other way that Real Insurance is innovating to help protect our fragile environment.

Gillian Lilley
Freelance Business Writer

Original link here.

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Interesting stats on who are the biggest train travellers, cylists, etc...

2009-11-27T09:20:00.000+11:00

We are doing a series of interesting press releases on run of the mill census data. They deal with who the biggest users of alternative transport are in Australia. Like who are the biggest train users. Clearly these people are going to be winners when they take out Pay As You Drive!

From http://www.newsmaker.com.au/news/1938:
Residents of Summerhill are Australia’s biggest users of trains per capita and as a result many of them are probably paying far more for their car insurance than they should says Roger Grobler, CEO of Real Insurance.

Says Grobler: “We have analysed numerous Australian Bureau of Statistics figures across the suburbs of Sydney. While Summerhill residents should be commended on their extensive use of public transport the fact of the matter is that if they have a car they are still paying the same car insurance premiums as those who drive even four times the distance.

“In effect many Summerhill car owners using public transport are subsidising other motorist’s car insurance premiums.

“I believe that there are many drivers in Summerhill who are paying far more for their car insurance than they should given their profile and the distance they drive.

“These motorists are far better off exploring a pay-as-you-drive insurance system whereby they only pay for the kilometres they drive.”

Grobler points out that pay-as-you-drive motor insurance only works for those people who drive less than the average for their area and their demographic profile compared to their peers.

He gives the example of a 39 year old female living in Summer Hill who could save up to $365.29 by going to Pay As You Drive car insurance. She drives a 2007 Hyundai Getz 5 door auto and would traditionally pay motor insurance of around $807.88 per annum. Using Pay As You Drive she would pay $442.59 for 5,000kms, $486.91 for 7,000kms or $553.40 for 10,000kms of car insurance purchased.

Further examples

Cairns
Residents of Cairns are the largest bicycle users in Australia, yet like the train users of Summer Hill, are still paying the same premiums as regular car users.

A 29 year old Female living in Cairns who could save up to $193.90 by going onto Pay As You Drive insurance. She drives a 2007 Mazda 2 Neo Auto and would traditionally pay motor insurance of around $563.50 per annum. Using Pay As You Drive she would pay $369.60 for 5,000kms, $401.94 for 7,000kms or $450.45 for 10,000kms of insurance purchased.

Campbelltown
A 49 year old male living in Campbelltown who could save up to $356.97 by going onto Pay As You Drive insurance. He drives a 2007 Ford falcon Eurosport auto and he would traditionally pay motor insurance of around $874.83 per annum. Using Pay As You Drive he would pay $517.86 for 5,000km, $559.73 for 7,000kms or $621.68 for 10,000kms of insurance purchased.

Pymble
A 40 year old male living in Pymble who could save up to $323.82 by going onto Pay As You Drive insurance. He drives a 2008 Holden Lumina VE and would traditionally pay motor insurance of around $800.67 per annum. Using Pay As You Drive he would pay $476.85 for 5,000kms, $517.90 for 7,000kms or $579.51 for 10,000kms of insurance purchased.

Our Incredibly Talented Team

2009-11-23T22:40:00.000+11:00

Once a year we have a conference at Real Insurance that is attended by our entire team. It is a very special event.

We normally have teams performing skits at our conference. This year we replaced the skits by an invitation to produce TV ads for either Real Insurance or Pay As You Drive. Our team produced over 10 adverts, which we screened on a cinema screen at the Entertainment Quarter in Sydney. The TV ads are part of a competition, and the winners are decided by a combination of the idea, creative execution and views on YouTube. The full set of ads will be placed on YouTube shortly.

In the mean time, have a look at this entry. I must say I am blown away by both the idea and the execution. Make sure you listen to the sound effects. This particular ad was made by our IT infrastructure team. How lucky are we to have such a talented group of people that are not only good with their day jobs, but that can also come up with quality like this:

News Item on California Regulations

2009-11-15T19:35:00.002+11:00

People who follow the development of Pay As You Drive motor comprehensive insurance internationally will know that California has released regulations that allow insurers in that US state to offer Pay As You Drive policies.

The news clip below typifies a lot of the news coverage about it. Most of the news on Pay As You Drive over the last few months have been about the Californian regulations.

If you're unfamiliar with the US insurance regulations: In most states in the US an insurance company needs to "file rates", which means that prior to issuing a new insurance policy the way in which premiums are calculated needs to be approved. There are guidelines as to what rating factors insurance companies can use. So in California for instance insurance companies could not do Pay As You Drive until the regulator actually allowed rating to reflect kilometres driven.

Latest Real Pay As You Drive TV Ads

2009-11-10T19:36:00.002+11:00

We launched a new set of ads last week for Pay As You Drive. The first one features a lighthouse keeper that drives from his house to the lighthouse every day. Not a big distance as you will see in the ad...

It is all farcical of course. As is the next ad, where a women "commutes" out of her driveway to the busstop a whole 20m down the road.

We have a new jingle in the ads, which we will be using going forward, as well as a set of end screens showing our actual team on the phones.

Lighthouse:

Commuter:

Any comments or feedback, as always, is most welcome!

Mistake by Bloomberg on reporting iPhone as a tracking solution at Farmers'...

2009-09-28T09:14:00.000+10:00

The article referred to in the previous post was an (interesting) mistake by Bloomberg.

The following is from Farmers':

"All - I wanted you to be aware of some misleading media coverage attached below that is being distributed today by the Bloomberg News Service. The Swiss-based Bloomberg reporter confusingly leaves readers with the impression in the headline and lead paragraph that Farmers is already using technology to track miles driven by auto insurance customers. She also confuses the "pay as you drive issue" with our recent announcement regarding claims reporting via an iphone application. While the headline and first graf are misleading, the quotes attributed to me in the body of the story explain Farmers' position on this issue and provide some clarity to the story. I am working personally with the reporter and her London-based editor for further clarification, but wanted you to be aware of this if you receive any questions from staff or the field. Bottom line is that we continue to consider the future use of these type of technologies that could help us even more accurately match risk with product prices etc. Let me know if you have any other questions.

Mark S. Toohey
Senior Vice President and
Head of Media and Public Relations, North America
(805) 907-2216
mark_toohey@farmersinsurance.com”

iPhone tracking for Pay As You Drive car insurance in California

2009-09-25T06:22:00.000+10:00

Farmers' Group in California said yesterday that they will use iPhones and Blackberries to track cars under California's new Pay As You Drive car insurance regulations (Bloomberg). That is really fascinating. The iPhone has all kinds of technology in it that makes this an interesting proposition, at least in theory.

I would be quite keen to know how they are planning to solve the issue of the iPhone only running one application at a time. You can't expect customers to switch on the application that tracks them every time they get into the car.

At least one other iPhone application that have recently been published for insurance, by Nationwide. It deals with claims handling. It is basically an accident handling kit on your phone. Very cool. As per the website, the functions are:

Calls emergency services
Helps you collect and exchange accident info
Stores your insurance and vehicle info for easy lookup
Locates Nationwide agents near you
Takes and stores accident photos
Converts your iPhone into a handy flashlight
Helps connect you with towing services*
Helps you start the Nationwide claims process*
Finds Nationwide Blue Ribbon^SM Repair Facilities*

If you know of any other iPhone apps for insurance, please let me know!

The iPhone tracking article is below for completeness, or can be found on this link.

Zurich Financial’s Farmers Unit to Track U.S. Drivers

By Carolyn Bandel

Sept. 24 (Bloomberg) -- Farmers Group Inc., the U.S. unit of Zurich Financial Services AG that bought AIG’s auto-insurance business in April, plans to lower premiums by charging drivers for coverage by the mile, measuring car usage by iPhone and BlackBerry.

The insurer wants to base insurance costs on miles driven to “charge the right premium for the right risk” and keep premiums low, Mark Toohey, a spokesman for Farmers, said in a telephone interview from Los Angeles on Sept. 22. The company is considering offering a tracking product using mobile-phone technology at the end of this year or early in 2010.

Voluntary “pay-as-you-drive” regulations that allow insurers to base premiums on actual miles driven were announced Sept. 3 by the commissioner of the state of California Department of Insurance, Steve Poizner, who is responsible for enforcing insurance-related laws and previously founded SnapTrack Inc., which pioneered technology that put GPS receivers into mobile phones.

“We see some potential in California for using this type of technology because of California’s unique auto-rating regulations, which focus heavily on miles driven,” said Toohey. “Farmers doesn’t support the use of any technology which would require a customer to be tracked.” The company said the option to be tracked would be made available to customers and only used with their agreement. U.S. insurers are regulated separately in each state.

Insurers have been testing technology to offer pay-as-you- drive insurance in countries including the U.K., the U.S. and the Netherlands. So far, such insurance lets motorists prepay for the miles they expect to drive during the term of coverage, as with Polis Direct in the Netherlands, which is part of the Dutch automotive trade association BOVAG.

‘Very Costly’

Aviva Plc, the U.K.’s second-biggest insurer by market value, offered a policy that fitted a blackbox tracker device into cars using so-called telematics technology to record journeys. The insurer stopped offering the product last year because it “had to bear the cost of the box and the operating model was very costly for Aviva,” Erik Nelson, a Norwich, U.K.- based spokesman, said in a telephone interview today.

“We’re looking at various technologies and have set for ourselves an internal deadline for going to market with a usage- based rating option for our customers,” Toohey said. “Voluntary tracking measures and technologies may have as much relation or even more relation to accident risk as miles driven. Examples of these risk measures would be car speed, hours of day a customer drives or driving in congested areas.”

Separately, the Los Angeles-based Farmers launched last week an iClaims application for customers who used iPhones or iTouch. The application allows Farmers customer to immediately file an insurance claim.

To contact the reporter on this story: Carolyn Bandel in Zurich at cbandel@bloomberg.net

New Californian Regs published. PAYD called green.

2009-09-06T03:55:00.000+10:00

Californian Insurance Commissioner has published the insurance regulations allowing insurance companies to do Pay As You Drive insurance. The regulations are partly based on Real Insurance's product in Australia. There is also a push for more "Green Insurance".

It is fascinating how insurance products are likely to become transformation tools for the way in which we look after the environment.

Original article here.

California Bill Calls for Green Insurance

By Timothy F. Kirn
September 4, 2009

A bill just introduced in California could encourage more ecologically friendly insurance policy products, putting the state again at the fore of pushing, and leading, for greener public policies.
The bill, which has been titled the California Green Insurance Act of 2010, could affect a broad range of insurance products, from automobile coverage, to property/casualty policies, to workers' compensation plans.
Insurance would seem a good way to bridge over a wide range of different and varied endeavors that have a significant ecological impact, in one fell swoop. But, the legislation's sponsor, Assemblyman Dave Jones (D-Sacramento) said only that the inspiration for the legislation came to him because he thinks a lot about insurance as chair of the Assembly's health care committee, and because he wants to make a contribution to the environment.
The bill was introduced eight days before the California Legislature adjourns for the year. Jones said that was not done as an attempt to ram the bill through before opposition could mobilize. Rather, it was so the legislation would be on the agenda, and interested parties—including insurance companies--could begin to discuss and hone the measure.
Jones said he has had no input from anyone in the insurance industry yet.
Green insurance is not without precedent in California. The state Department of Insurance Commissioner Steve Poizner has called pay-as-you-drive automobile insurance, an option being considered in the state, a "green" insurance because it would encourage less driving.
Moreover, Fireman's Fund Insurance Company, for one, offers green replacement property insurance as standard for some of their policies. It first offered green commercial policies in 2006. It also has green homeowner policies.
Buildings, with their energy use, contribute more carbon emissions to the atmosphere than cars and there is a real push in the real estate industry to make buildings more energy efficient and less polluting, so it makes sense to offer insurance that recognizes that consciousness, said Janet Ruiz, a spokesperson for Fireman's Fund, Novato, Calif.
"We know that it is very popular for buildings to be more energy efficient and use less water," Ruiz said.
Jones' proposal would, among other things:
--Require the state insurance commissioner to hold hearings and gather information contrasting the risk, costs, and claims of low-emission vehicles compared with non-low-emission vehicles.
--Require property insurance companies to offer green replacement coverage and to offer coverage for solar and wind distributed generation as part of a homeowner's insurance policy.
--Require the insurance commissioner to hold hearings and gather information on the risk, costs, and claims associated with green buildings.
--Require the insurance commissioner to conduct hearings regarding the health impacts on workers in green buildings, and use in the information in establishing the Workers' Compensation Claims Cost Benchmark.
--Offer state tax credits to insurance companies that invest in financial institutions that provide products and services designed to protect the environment and support renewable energy projects.

The Geek says this is the scariest thing you have ever seen

2009-09-02T03:56:00.001+10:00

A geeky guy (he says he is a science teacher) made a compelling short video. Watch it. It is humble, compelling, contains very little hot air (except when he explodes gas in a bottle), and makes you think.

Your thoughts?

The future is electric

2009-08-28T04:00:00.000+10:00

BYD is bringing a $40,000 electric car to the US. It promises 250 miles to a charge. If that does not impress you, then consider that GM’s Volt only does 50 miles. Fifty miles? Why do they bother?

What is more, it charges 50% in only 10 minutes. How incredible is that! One of the questions that is being asked: Will the Americans get over buying a Chinese made car? Well, they got over American made cars…

What is more, Warren Buffet and Charlie Munger is invested in BYD. Not only that, but Charlie says it is the investment in his life that he is most proud of. And that is quite something, given that the two of them are the most famous investors of all time.

The future sure seems to be electric!

Some more detail here.

Gadaffi in your car

2009-08-27T04:01:00.000+10:00

There are a large number of technological developments on the horizon that will change the way in which insurance is done. Pay As You Drive car insurance is obviously one of them, and this blog has a number of discussion points on the technology around PAYD.

Some of the other technologies also discussed are electric cars and the infrastructure to “plug-in” a fleet of electric cars. Also on the horizon is “smart cars”. Cars that either drive themselves or take over from you in the case of sensing an accident about to happen. Cars that take an action to avoid an accident, even if it means swerving over a sidewalk and maybe destroying the cars wheels. Take that one step further and you realise that if a bunch of cars are driving near each other, they need to communicate with each other in order to decide what the best collective cause of action would be. From this gets born the concept of a leader car: The car that will decide on behalf of everyone how the group will behave when a danger appears. So what happens if another car is the leader car and decides to send your car over the pavement into a pole, because that is the situation that collectively has the smallest damage. And that in a situation where, if the intervention did not take place, you would not have been involved in the accident. Interesting and even scary stuff. Imagine the insurance implications.

Some cars already have technology that senses if you start getting drowsy. The cars monitor the speed at which you blink your eyes, and if this slows down the car alerts you. Good material for comic strips.

The technology discussed in the article below (original link here), is one that I have not seen before. It intercepts text messages coming to your phone, in order to reduce the distraction of texting while driving. Having texted myself while driving, I know that it is a dangerous practice and it definitely increases the probability of causing an accident. So from a risk mitigation perspective it certainly is attractive. It is however quite creepy.

Some years back Gadaffi (I guess “colourful” is a word that comes to mind in describing this long time de facto “leader” of Libya) visited the African Union which was held in South Africa. People complained that when him and his massive entourage raced around the streets of Johannesburg that their mobile phones will stop working. Gadaffi was driving around with jammers so that people in his vicinity would not be able to use their phones. The technology below is like having your own little Gadaffi in your car. And you are safer for it!

Block That Text

By Pat Speer August 26, 2009

Getting people to stop endangering themselves and others because they are texting while driving may not be possible; so stakeholders are looking at technology that blocks cell phones from displaying text messages in the first place.

The technology developers face an uphill battle, however, as texting has grown in popularity at blinding rates.

In 2005, research from the Insurance Institute for Highway Safety, Arlington, Va., found that drivers using cell phones were four times more likely to get in a crash serious enough to injure themselves. Since then, that number has seen explosive growth, as drivers use Bluetooth and other technologies to hold cell phone conversations while driving. But talking is just part of the distraction, say experts.

Drivers who use cell phones to send and read text messages, face even greater danger.

According to CTIA, an industry trade organization that tracks wireless technology, the number of monthly text messages grew to 110.4 billion in December 2008, up from 9.8 billion in 2005. Because “texting” is especially popular among teens, they represent the highest risk behind the wheel. This distraction, say experts, represents the perfect storm for personal lines property/casualty insurers.

Nationwide Mutual Insurance Co.’s second annual Driving While Distracted (DWD) study, released in October 2008, shows nearly half of Americans (48%) considered cell phones to be the most dangerous distraction while driving. More than 40% say they have been hit, or almost hit, by another driver who was talking on a cell phone.

Some states recognize this. In fact, 17 states and the District of Columbia have banned texting while driving, while 10 other states plan to pass laws this year, according to the Governors Highway Safety Association. Fines and penalties vary from state to state.

And although federal laws may be ideal, regulators say this would be difficult to enforce.

The answer may be an “if you can’t beat ‘em, stop ‘em temporarily” approach, as technology solution providers gear up to produce technologies that would make safety the priority.

Much of this technology uses global position system (GPS) technology to block texts from being sent or received while the owner is driving.

In particular, Aegis Mobility Inc., Vancouver, is developing an application that uses a phone's GPS to detect when it is moving at driving speed to intercept incoming calls and texts. Called DriveAssist, the software also blocks outgoing messages, though the owner can override it to make emergency calls. The vendor says the software should be available next year, and Nationwide will be one of the first to offer a premium discount to policyholders to employ it.

Other technologies in development include voice messaging, which creates an audio message from a text message that can be played with the touch of a key. Analysts say insurers are looking at these technologies as a viable way to improve safety and reduce claims.

Brand new Chief Operating Officer

2009-08-21T04:02:00.000+10:00

I am delighted to announce that Clive Mendes joined Real Insurance as our brand new Chief Operating Officer. Clive and his family (Astrid his wife, and his twin baby daughters Fabian and Francesca) moved all the way from Berlin to join our team.

Clive is an international insurance veteran and former CEO of Royal Insurance’s Italian operation and Group Strategy Director of Royal & Sun Alliance.

I am very please that we found someone of Clive’s experience and calibre. So successful was Clive’s role in setting up the Royal Insurance operation in Italy that the Italian super brand has been written up as a case study in Marketbusters, a Harvard Business School text book. Clive’s next job is to get Real written up in book!

Some more about Clive: At 23 he was the youngest country manager in the history of the Royal Group when he was appointed to a general manager role in the Bahrain office. He later went on to manage the Lisbon office. Clive says that for the first time in a very long time he is actually conducting insurance in English!

Clive says: “Real Insurance is not unlike the Royal operation in Italy in its early days. It is growing rapidly, has some very innovative and ground breaking products and for a company its age, it is already quite advanced and sophisticated in its thinking across every department.

“My goal is to help the Real Insurance team become a truly stand-out business to which customers faithfully and happily bond and which is respected by its peers and society in general for world-class performance, operating excellence as well as leadership and innovation across the business.”

Clive studied Languages (Arabic, Spanish and Portuguese) at Glasgow University, Business Administration at Edinburgh University and a BA in Music from the Open University. He was born in Jamaica and has lived in the UK, Spain, Portugal, Bahrain, Germany and Italy. He speaks seven languages! - Arabic, Spanish, Portuguese, Italian, French, German and English.

He also composes music.

Clive joins a strong Real Insurance team, which means the best is yet to come!

Changing the way we pay for using the road

2009-08-16T04:03:00.000+10:00

A report was released on a Treasury website last week that proposes a conceptual framework for reforming taxes relating to road use and transport. It is a big report (104 pages) dealing with everything from petrol excise tax to Pay As You Drive insurance.

Real’s Pay As You Drive car insurance features in the report as the first (and only) insurance product with premiums linked directly to kilometres driven. It is good to be mentioned!

Anyway, the report is quite technical, but makes far ranging and courageous recommendations including proper taxing for road use by using telematics.

I think the biggest single obstacle for proper charging for road use and a removal of negative externalities is public opinion. I am amazed at the irrationality of some objections, and for others I can understand the change being perceived as unfair for a specific person. The fact is people have been using roads without much direct charge for how much they use the road (they still pay for it through other taxes). So to now accurately charge mean that some people will suddenly pay a lot more (because they use more). And this creates noise. Just think of the noise created when the cross-city tunnel fees change.

There is a perception that roads should somehow be free (one commentator said “OUR RIGHT TO UNFETTERED ROAD USE”). A significant amount of education will need to take place before proper charging for road use will have any chance of being implemented.

A large part of the emotion is addressed at the public transport system. So people that claim they have to drive because the public transport system is insufficient, claim that to tax them for driving their cars is unfair.

So here’s the typical argument: The only house I can afford is far away from the city, where there is no public transport. So I have to drive. Why should I pay for road use when the rich people who can afford to live in the city or close to the train station don’t have to?

Tough question. An answer is that if road use is properly charged for, then property away from the city or not close to public transport will become cheaper (less demand) and visa versa. So the person that made the argument above would have paid a low price for their property. The “rich” people have paid for the benefit of not having to drive through expensive property. The answer of course does not work when you have to change road charges, as the person who already owns the undesirable house will be even worse off, and have to pay for driving to work…

An article appeared in the Herald Sun, following the RACV making suggestions similar to the tax report above. To illustrate the emotion, have a look at some of the comments posted on the Herald Sun website:

Let's see, I live in the outer suburbs as I cannot afford the inner city house prices. I don't have Public Transport as it is not deemed as a reasonable use of Government funds to send the train lines out everywhere. Local councils have stuck metres at local parking areas that service train stations nearby. Now they want to tax me to drive further to work? Come on who is making these decisions?

Posted by: Stephen of Melbourne 10:18am August 28, 2008

This is a ridiculous idea! Watch the cost of everything go up then...for example...as a tradesman -No more free quotations, extra charges on quoted works for transport & handling costs..get the idea. These taxes will no doubt filter into costs of everyday living expenses...haven't we got enough pressures already?

Posted by: EJ of MELB 10:17am August 28, 2008

The first thing that should happen if this type of lunacy is adopted is for all people in this country launch a class action with the anti discrimination comission. It's not my fault that I can't afford an appartment in the inner city, it's not my fault that the only place I could buy a house I can afford is 30km from where I work nor is it my fault that I would have to travell further if my employer moves to larger premisis. And for all of you that are now madly tapping away at your keyboards to tell me I should use public transport here are the facts. When I have to start work at 6:00 am (first shift), there is not train or bus that allows me to get into the city for the line change to get to work on time and on the regular occasions when on night shift that I am required to be there after 11pm there is no way for me to get home other than by taxi ($115.00) due to the 3 zones that te taxi crosses, lastly lets not forget that this in an unreasonable (& possibly unconstitutional) impost on the taxpayer based on their usage of infrastructure for which we already pay taxes irrespective if it replaces fuel exise and registration.

Posted by: PaulM of Brisbane 10:08am August 28, 2008

What an outrageous invasion of privacy.

Posted by: Ophelia of Victoria 9:54am August 28, 2008

What a joke, once again pick on the workers, make it harder forthem to get ahead and give their kids a better life. FIX THE TRANSPORT SYSTEM and your problems will go away!!

Posted by: Joe 9:53am August 28, 2008

When will people wake up that personal privacy is the MOST important thing they possess in a democracy. This "idea" is one of the most malicious and scary that I have seen. Please, please DON'T underestimate the value of YOUR privacy. Once they take it away it ain't coming back!! They use all sorts of spurious excuses like congestion, crime and terrorism to try to impose government control. If you actually want to live in such a place, then simply book a ticket to Russia. Average australians are too apathetic or stupid to understand the full import of these attempts to remove personal liberty. WAKE UP!!

Posted by: Jason Thornton of Melbourne 9:46am August 28, 2008

Another exercise in the total regulation of private motoring , suggested by the most anti motoring cadre in Australia ..the allegedly pro motoring Automobile clubs , infiltrated and controlled by Left wing greenies to a man .Don¿t join them and don¿t support them .ITS GOING TO ELIMINATE YOU YOUR RIGHT TO UNFETTERED TRAVEL. Allied to carbon taxes you wont be able to move anywhere without Government sanction. Even if you see Aunt Jane some faceless bureaucrat will know you did so twenty years from now as it¿s a permanent record .Fancy that?

Posted by: frankly fed up of melbourne 9:30am August 28, 2008

City- centric once again. Presumably consessions would be built in country drivers and even those in outer suburban areas otherwise such a tax would be yet another example of the way beauracrats in this state think Victoria consists only of the city and its suburbs.

Posted by: Robert of Woodend 9:27am August 28, 2008

All very well for people who can afford to live near & work in the city. There are a lot of people out here like me who would need to take a bus, two trains & a tram to get to & from work and it would take me two hours each way. As for buying a smaller car - who can afford to buy a new car?? Once again suggestions that are geared to help the better off in the community.

Posted by: Kate of Melton 9:12am August 28, 2008

This is not going to be easy change to introduce, regardless of how correct it is.

History is being made- Telsa is profitable

2009-08-09T15:43:00.000+10:00

Tesla makes electric cars. Tesla makes very fast sports cars. It is the same cars.

Tesla is a start-up motor manufacturer. Tesla is profitable. It is the same company.

Tesla is full of paradoxes. It is utterly significant that they are making a profit already on revenue of only $20m. They made new cars from almost scratch. The percentage of the car that is new is over 90%. And it is an electric car that leaves Porche in the dust!

A press release from the Tesla site given below. The most remarkable quote from the press release is: "The highly acclaimed Roadster -- faster than a Porsche and twice as energy efficient as a Toyota Prius – is the only highway-capable electric vehicle for sale in North America or Europe."

The only highway-capable electric car that is faster than a Porsche and twice (yes twice) as energy efficient as a Prius!

I want one.

The press release is below. The original is on this link:
Tesla Motors attains profitability milestone
Electric vehicle manufacturer achieves record deliveries in July and will significantly expand in Europe this quarter.

August 7, 2009

SAN CARLOS, Calif.--(BUSINESS WIRE) —Tesla Motors attained a significant milestone in July when it achieved overall corporate profitability with approximately $1 million of earnings on revenue of $20 million.

Tesla reached overall corporate profitability while continuing to develop the all-electric Model S sedan and opening regional sales and service centers. Profitability arose primarily from improved gross margin on the Roadster 2, the second iteration of Tesla’s award-winning sports car.

Tesla shipped a record 109 vehicles in July and enjoyed a surge in new Roadster purchases. In the third quarter, the privately held company will make significant deliveries to European customers while expanding its presence in several countries.

“We achieved a bottom-line profitability thanks to a tremendous amount of hard work by the Tesla team to improve quality, while simultaneously reducing costs on the Roadster,” said Tesla CEO and Product Architect Elon Musk. “This also shows that there is strong demand for a car that is unique in offering high performance with a clean conscience. Moreover, customers know that in buying the Roadster they are helping fund development of our mass market electric cars.”

The highly acclaimed Roadster -- faster than a Porsche and twice as energy efficient as a Toyota Prius – is the only highway-capable electric vehicle for sale in North America or Europe. It’s the first production EV to travel more than 200 miles per charge and the first US- and EU-certified Lithium-Ion battery electric vehicle. With an estimated range of 244 miles per charge and zero tailpipe emissions, it offers supercar performance with a clean conscience.

The Roadster 2, which Tesla is building and shipping to customers now, features an array of enhancements. Those include a more powerful heating, ventilation and air-conditioning system, more comfortable seats and a more luxurious dashboard and cabin.

Last month Tesla began delivering the Roadster Sport, an even higher performance car that does 0 to 60 mph in 3.7 seconds, compared to 3.9 seconds for the standard Roadster. The Sport includes a more powerful motor, custom-tuned suspension and forged wheels. A customer’s Roadster Sport sprinted the quarter-mile in 12.643 seconds in late July, setting a class record in the National Electric Drag Racing Association.

Financing Now Available

Last month, Tesla announced Roadster financing through Bank of America. Financing means the Roadster can have lower total monthly costs than a gas-guzzling sports car with a similar sticker price. Prospective customers may complete loan documents in Tesla’s showrooms or online.

The Roadster is six times as energy-efficient as comparable sports cars – yet it does not require routine oil changes or exhaust system work. Roadsters have far fewer moving (and breakable) parts than internal combustion engine sports cars, which need replacement such as spark plugs, pistons, hoses, belts and clutches. The Roadster costs roughly $4 to fully recharge – a bargain even when gasoline costs less than $1 per gallon.

Tesla sells cars online and at showrooms in California (Menlo Park and West Los Angeles), New York City, Seattle and London. Tesla is rapidly expanding its network of showrooms this summer with stores in Chicago, South Florida, Washington DC, Toronto, Munich and Monaco.

Tesla has developed an industry-leading mobile service team, including highly skilled technicians who make “house calls” to customers’ homes or offices in every region where Tesla sells cars. Electric vehicles have far fewer moving (and breakable) parts than internal combustion engine vehicles. They qualify for federal and state tax credits, rebates, sales tax exemptions, free parking, commuter-lane passes and other perks.

Tesla, which in June won Department of Energy approval for $465 million in low-interest loans, is deep into the development of the Model S. The all-electric sedan will have a base price of $49,900, roughly half the price of the Roadster. Reducing unit cost on the Roadster is helping Tesla to bring the Model S to market at a vastly lower price point, paving the way to mass-market EVs for mainstream buyers.

In addition to the Model S program, Tesla is jointly developing an electric version of the popular Smart car with Daimler. The first of an initial test fleet of 1,000 electric Smart cars are expected to be on the road in late 2009.

New Pay How You Drive product in the UK

2009-07-28T15:38:00.000+10:00

A new PAYD product went live recently. The website is payhowyoudrive.co.uk.

The pricing is based on how you drive as opposed to how far you drive. They are targeting people who struggle to find car insurance otherwise, and younger drivers.

A few comments after having only spent a few minutes on the site:

The car insurance product incentivizes safe driving behaviour, which is good.
The driving is scored using a points based system.
You can lose your car insurance policy, much like losing your license on the Australian demerit point system if you get to 12 points. Not sure how that works legally, but the contract probably has safe driving as an underwriting condition.
Points drop off after time, again similar to the Australian driving license demerit point system.
You buy miles in mileage bands, by agreeing to maximum mileage. That means you declare up front how much you’re going to drive, and then get penalty points if you do more than that. I assume you pay more for higher mileage bands. The mileage bands available are 3,000, 5,000, 7,500, 10,000 and 13,000 miles.
You get penalty points for fast driving, going over your stated mileage band, and driving too much at night (more than 10% of your mileage band).
Quite amusingly, if you get to 12+ points you have 7 days to “appeal” against your policy being taken away. Would love to see how that fits into the British arbitration system!

What is good about the product:

It links insurance cost to driving behaviour, which should improve how people drive.
People can get feedback on the site on their historical behaviour.

What can be better:

The product is still quite complicated. I am not sure how it can be made simpler, but it is not all that easy to understand.
The penalty points are for a small set of behaviours only.
It is not explicitly linked to mileage driven, but rather implicitly through the bands.
The telemetry device needs to be installed, and collects location data.

All in all, it is good to see another Pay As You Drive product go live, and we wish them well!

Advertising Pay As You Drive

2009-07-22T15:39:00.001+10:00

Pay As You Drive is a great car insurance product. And we’re very biased, I know, but it saves serious money on car insurance for people who drive less than average, and fairly so. At Real Insurance we have had hundreds of thousands of people getting car insurance quotes from us over the last year since we launched. Also, if I look at people talking about PAYD on discussion forums, then it is clear that people “get it”. They understand why the product is a fairer way of doing car insurance, and that is why they call us for car insurance quotes.

An interesting challenge that we have had to solve is how do we advertise the product? How do you explain that this is better car insurance for some people, and that they should call us to get a car insurance quote from us? How do you do that in 30 seconds?

Our latest ads use a device of showing one car driving a lot, and another car driving very little (and sitting in the garage for most of the time). The premise being that if you drive less, you have less chance of being in an accident, and therefore your car insurance quote should be less than for traditional car insurance. I think it is pretty effective. It amazes me to see how much our marketing team can get into a 30 second car insurance TV ad. A version of our latest ad is below. Please let us know what you think by commenting below!

New proposed Pay As You Drive Regulations in California

2009-07-21T15:36:00.000+10:00

The Commissioner of Insurance in California has put out a second round of regulations around Pay As You Drive car insurance in California for comment. The regulations are pretty good, and allow for a wide range of designs of car insurance products using mileage as a rating factor.

Some highlights:

The regulations allow for the product design that we have in Australia. We’re quite flattered by that! It is good to know we could serve as an example for California!
The regulations allow for a wide range of ways in which to monitor mileage, including telemetry (tracking devices). The devices are NOT allowed to track location though.
The regulations stop short of mandating insurance companies to HAVE to provide PAYD. This will no doubt disappoint some of the strong advocacy groups. The Multiple Prisoner’s Dilemma will make uptake slow, regardless of the regulations.

The one aspect of this that I still don’t understand is the vehement objections that are made against privacy violations. The regulations prevent location tracking, which I understand, and which I think protects both the consumer and the insurance company.

There are however people who object against driving behaviour being captured. Why would that be? Can someone enlighten me? Why would we as a society not want to know who drives irresponsibly, and why should the rest of us be paying extra insurance for people who drive like hoons?

In one of the responses to the regulations, Andrew J. Blumberg (Stanford), Lee Tien and Peter Eckersley, says the following:

“We believe that it makes no sense to permit the use of any “technological device” without making clear what it does or does not collect. It is our understanding that commercially available devices gather signiﬁcant information about driving behavior, such as braking, swerving and acceleration. We fear that the “innovation” and “attendant beneﬁts” of a veriﬁed actual mileage program lie not in greater accuracy in verifying annual miles driven but in the collection and exploitation of information that does not relate to actual mileage. This fear is ampliﬁed by the fact that insurers may use “[i]nformation collected by a technological device” to “calculate automobile insurance rates,” which is entirely different from verifying actual mileage. Mileage veriﬁcation should not be used as a subterfuge for collecting other information about drivers. Furthermore, the text does not specify adequately controls on the use and dissemination of the information collected. To this end, we recommend the following speciﬁc changes to the proposed regulations:

The technological device will be used only to collect the veriﬁed actual mileage, and no other information. In particular, it will neither collect nor store nor transmit information about the position, velocity, or acceleration of the vehicle.”
Original link here.

Why should we be sensitive about that?

For interest, the actual regulations have the following three product descriptions in them:
1. Time Basis Policy. All coverages are offered for a set time period. If the block of miles purchased by the insured expires and the insured does not purchase additional miles, all coverages will continue to the end date of the policy. However, this does not relieve the insured from any obligation under the terms of the policy to pay for miles driven in excess of the purchased block. The price per mile for miles purchased after expiration of the mileage block may be greater than the price per mile for miles purchased before expiration of the mileage block, if the insurer establishes an actuarial basis for such differential pricing and the Commissioner approves the differential pricing in the insurer’s rate or class plan application.

2. Hybrid Time Basis and Miles Basis Policy, with notice of expiration provided at time of policy purchase. Automobile liability coverage is offered for a set time period. If the block of miles purchased by the insured expires and the insured does not purchase additional miles, all coverages other than automobile liability coverage will expire, provided the insurer gives notice pursuant to California Insurance Code Section 663. An insurer may comply with the notice requirements of California Insurance Code Section 663 if it gives notice to the insured at the time of purchase of the policy that specified coverages other than automobile liability coverage will expire upon exhaustion of the purchased miles. Such notice shall be effective only if the insured agrees in writing at the time of purchase of the policy to the terms of the notice and acknowledges his or her understanding of the consequences of exceeding the purchased miles.

3. Hybrid Time Basis and Miles Basis Policy, with notice of expiration provided at time the insurer determines that purchased miles have been exhausted. Automobile liability coverage is offered for a set time period. If the block of miles purchased by the insured expires and the insured does not purchase additional miles, all coverages other than automobile liability coverage will expire, provided the insurer gives notice pursuant to California Insurance Code Section 663. An insurer may comply with the notice requirements of California Insurance Code Section 663 if it gives notice to the insured at the time the insurer determines that the purchased miles have been exhausted. The coverages subject to expiration will expire 30 days following the insurer’s notice (in the case of nonrenewal) and 20 days following the insurer’s notice (in the case of an offer of renewal), unless the insured purchases more miles.

Insurance and innovation

2009-07-17T15:38:00.000+10:00

An article recently compared a BusinessWeek innovation list with innovation in insurance (see the article below). The writer, Chad Mitchell, makes the case that there are innovation in motor insurance in particular, it is just not noticed, and that more innovation will follow.

I agree with Chad. It is frustrating that insurance innovation is not noticed. It is even more frustrating in Australia than it is in the US. In fact, at Real we have two the three innovations Chad mentions in his article. We launched the world’s first trust-based Pay As You Drive car insurance, and Australia’s first Pay As You Drive car insurance. Our products have highly customisable cover, and you can optimise your premium to what suits you (within a framework of course).

If there are any notable innovations in the insurance space, particularly the personal lines insurance space, please comment on this posting, and let us know what you think!

Insurance and Innovation: An Oxymoron?

By Chad Mitchell July 8, 2009

Awhile back I wrote about the evolution of social media strategy for insurers. The premise of the blog was how insurers effectively use social media to improve customer service and help agents.

The topic of social media is a microcosm of a bigger question I commonly receive from insurance executives: Can insurers and other financial services firms innovate?

Innovation within insurance is stifled because of the extremely challenging regulatory environment. Individual state legislation, product restrictions and widely varying consumer regulations often deter insurers from investing in new products, pricing, promotions and services.

There is proof, for the naysayers, that innovation remains a myth for insurers and financial services providers. Business Week annually ranks the Top 50 Most Innovative companies around the world. Not a single insurer or financial services firm appears in the ranking (except for Citigroup). I don’t believe the report card tells the entire story though. Yes, insurers may never offer the next iPhone or Dyson vacuum, but the track record for innovation is growing.

Just look at a few examples of innovation from insurers over the past few years:

• Telematics and pay-as-you-drive insurance. Progressive leads the pack offering an array of innovative products and services. The firm uses telematics to offer customers a novel concept— a car insurance policy based on how well and how much you drive. Progressive’s MyRate pay-as-you-drive product is a behavior-based car insurance policy that lets drivers lower their premiums based on how they drive. Drivers receive a small wireless device that plugs into a port in their car and measures how, how much and when the car is being driven. Cars driven less often, in less risky ways and at less risky times of day can receive a lower premium.

• Price comparisons and “name your price” solutions. Priceline.com built the business model for name-your-price travel. And Progressive seized the opportunity to innovate within insurance. Progressive currently promotes its Name Your Price service that allows customers to set a budget for auto insurance. Then Progressive builds an auto policy to fit the customer’s needs and wallet. Progressive and Esurance also innovate by offering customers competitive price comparisons at their Web sites. A customer can see a Progressive or Esurance quote along with two to four competitors’ prices. This creates transparency for customers who are seeking the best coverage and lowest possible price.

• Mobile applications and the iPhone. Apple topped Business Weeks’ list as the most innovative company in the world. The company continues to dominate the MP3 market with the iPod, and is making waves in the mobile category with the iPhone. The iPhone is only used buy a small portion of mobile U.S. customers (around 5%), but the penetration of smart phones continues to grow exponentially. Nationwide jumped on this growing segment, and was the first U.S. auto insurer to develop a claims application for a smart phone. The firm released its new iPhone application, available to Nationwide and non-Nationwide customers, that lets policyholders file a claim, take pictures of accidents and manage the claim process through an iPhone application.

These examples may not grab headlines or put any insurers in Business Week’s most innovative ranking, but I believe innovation is happening right now. I speak every week with leading insurers who are evaluating amazing new innovations.

Most innovations are related to integrated online experiences that give customers the opportunity to build a personal risk and financial inventory. Customers will soon have online, mobile and social applications with rich tools, calculators, real-time pricing and online advice software to help them optimize their insurance and investment portfolios.

These integrated experiences will incorporate budgeting, banking and payment solutions normally found through traditional retail banks or investment brokerages.

Human resources and hiring trends are also improving the odds for innovation within insurance. Insurers are hiring senior IT, eBusiness, marketing and product executives from outside the industry. This hiring trend brings new talent to traditionally conservative insurers and executives with proven innovation performance.

We will continue to see major strides in innovation in the next year as insurers deliver more customized products and services to policyholders. Innovation and insurance is no longer an oxymoron.

Original article here.

Some more Australian Press Coverage

2009-07-13T15:35:00.000+10:00

Since we launched Real Insurance Pay As You Drive® in Australia, we have had more good press in the US than in Australia. We are apparently known as “that Australian company”, and (somewhat insultingly…) I have been asked many times why our innovation happened in Australia first (as opposed to in the US). We believe we’re a world first. So we are quite glad when we get some attention in Australia.

Jordan Chong wrote an article for AAP recently, which was published (without any vetting from us beforehand) quite far and wide in our terms. The article is included in the post below. Or you can view an example of the article online on this link.

Mr. Chong helped to generate some more publicity around PAYD – and that is a good thing. However, we did not see the article before it was published. This means there are some comments in the article that are not exactly right, so for good measure, you should note that:

1. None of the comments in the article were actually made by or for the Institute of Actuaries of Australia (Institute). Instead, the comments were made by Colin Priest in the context of an earlier presentation he made to the Institute. .

2. You can buy any number of kilometers on Real’s PAYD. The minimum is 5,000kms (as opposed to being sold in 5,000km blocks).

3. Real does verify the odometer of the vehicle in case of an accident, or when unused kilometers are to be refunded. It does not verify the odometer when the policyholder takes out the cover.

A related press release is also on this site, at this link.

Jordan Chong’s article:

Change to car insurance nets big savings

July 3, 2009

Basing the cost of car insurance on how far you drive can save people money and help the environment, a study says.

An analysis by the Institute of Actuaries of Australia found there was a potential saving of $3.2 billion per year if the cost of maintaining a vehicle was more closely linked to the number of kilometres driven.

One way of doing this was through pay-as-you-drive (PAYD) insurance, where the cost of the policy was based not only on the usual factors - driver age, gender, location and vehicle type - but also on how much the car was used.

The only provider of PAYD car insurance in Australia is Real Insurance, which has been in the market for about 12 months and sells insurance in 5000-kilometre blocks.

Real Insurance chief executive Roger Grobler said more than half of policy holders purchased the minimum 5000-kilometre option.

"If you're not using your car, you can't be involved in an accident," Mr Grobler said on Friday.

"The more you drive, the more the probabilities are of you being involved in an accident and the more your insurance should cost.

"Traditional insurance just doesn't work that way."

The Institute of Actuaries of Australia said the $3.2 billion annual saving - which equated to about $304 per vehicle - did not only flow to motorists in the form of lower insurance costs.

Cities and governments also benefited as fewer cars on the road meant fewer accidents, less congestion and reduced demand for road maintenance, as well as cleaner air through less pollution.

The findings were presented at the institute's biennial convention in April this year.

"Australians drive too much because much of the costs of driving are not paid directly by the driver or owner," the institute's Colin Priest said in a presentation at the convention.

"We estimate Australians will drive seven per cent fewer kilometres if Australia switched to PAYD."

Mr Grobler said a very small reduction in the extent to which people used their cars would have a "massive impact both for individuals and for society".

A financial analyst at Canstar Cannex, Joshua Zenas, said those with PAYD insurance had to keep track of how many kilometres they were logging.

"You need to be exactly aware of where you stand and how many kilometres you are left with," Mr Zenas said from Brisbane on Friday.

"That extra burden is there on a driver."

Mr Zenas said those who were not heavy drivers could potentially benefit financially from the PAYD method.

"There is a substantial level of savings based on the type of driving you do," Mr Zenas said.

Some PAYD providers overseas used annual odometer checks or installed a device in cars to keep track of driving distance, but Mr Grobler said Real Insurance did none of these things.

"It's based on a trust principle, there's no monitoring," Mr Grobler said.

Mr Grobler said PAYD insurance was available in the US, Canada, Japan, South Africa, India and parts of Europe.

The average motorist drives about 14,600 kilometres annually, according to figures from the Australian Bureau of Statistics.

Write-up on the PAYD talk at Accord Loma Conference

2009-05-23T17:13:00.002+10:00

The talk on PAYD I did was written up in the National Underwriter. Quite scary how a Powerpoint presentation (actually Keynote, it is just a lot cooler...) is written up like this... Speed of information is incredible.

Original on this link.

Insurers Looking Beyond Pay-As-You-Drive Face Risks, Says Expert
ORLANDO, FLA.—Insurers may face new transparency obligations and regulatory challenges as they explore pay-how-you-drive and pay-where-you-drive insurance coverage, an insurance executive advised here.

Those new conundrums, where insurers gain knowledge of dangerous driving activity, were voiced by Roger Grobler, CEO of Australia-based Real Insurance, speaking at the ACORD-LOMA Insurance Systems Forum.

Already, insurers offering pay-as-you-drive auto insurance with rates based on how many miles a vehicle is driven have sparked some concerns about privacy where monitoring devices inside cars are used to track this information.

Mr. Grobler, whose company has a pay-as-you-drive program, said this problem can be avoided because insurers can also collect mileage information through periodic odometer inspections and other methods to avoid these privacy worries.

Mr. Grobler said Real Insurance uses a trust-based system for tracking mileage. Customers purchase coverage based on how many miles (kilometers in Australia) they plan to drive for the coverage period.

If the driver has an accident during the coverage period, and the odometer reading is above the purchased amount of miles, the claim is not covered, Mr. Grobler noted.

While buyers could conceivably roll the dice under this scenario, Mr. Grobler said most consumers want to know they’ll have coverage in the event of an accident.

Mr. Grobler said while pay-as-you-drive determines how many miles a person is driving, it does not identify if a person is driving poorly. For this reason, Mr. Grobler said Real Insurance is looking into a pay-how-you-drive program.

Under this program, a telematic monitoring device (not a GPS system) would reveal how the car is driven as well as miles. It would capture information such as speed, the rate of acceleration and deceleration, and time of day a vehicle is driven.

Mr. Grobler cited Progressive as a U.S. insurer using a pay-how-you-drive system.

The concept, he added, could promote safe driving as customers who know, for example, that the system is capturing whether they are driving during higher-risk hours between 11 p.m. and 5 a.m. may decline to do so.

A system such as pay-how-you-drive could also change the way insurers view rating factors. Mr. Grobler said with the type of data captured, insurers can see if an 18-year-old is driving more like an experienced driver, and if so, that 18-year-old can be rated similar to an experienced driver. Conversely, if a driving veteran is operating like a reckless 18-year-old, rates can reflect that as well.

Pay-how-you-drive, and the information it captures, is also less of a privacy concern than another concept: pay-where-you-drive, Mr. Grobler said.

Under pay-where-you-drive, a GPS system captures all driving information, including where an insured is at a given time. This system, Mr. Grobler said, is “quite invasive when it comes to privacy.”

He said it can raise questions as to a carrier's possible legal obligations and exposures when, for example, its data reveals that a policyholder is speeding though a school zone every day. He asked: Is the insurer obligated to inform law enforcement, and can the insurer be held liable if the insured strikes a child one day in that school zone?

How these pay-as/how/where-you-drive programs are treated by regulators and adopted by insurers remains to be seen. Progressive’s MyRate program, for example, is currently available in only 10 states.

Insurers may be reluctant to adopt such a program because their systems may be based on the current methods of evaluating risk, Mr. Grobler noted. Starting a new pay-as-you-drive program may require a lot of changes.

Milemeter's Chris Gay speaks at Ceres Conference

2009-05-23T17:06:00.003+10:00

The following article appeared on EarthTimes following a Ceres conference on PAYD, where Todd Litman and Chris Gay spoke. It is good to see trust-based PAYD get some air time!

Original article on this link.

MileMeter Founder Featured as Expert on By-the-Mile Auto Insurance
DALLAS - (Business Wire) A select group of auto insurance regulators, environmentalists, consumer advocates and auto insurance executives recently gathered at the 2009 Ceres Conference to hear three industry experts outline the benefits of pay-as-you-drive (PAYD) insurance.
“Pure mileage-based insurance is a unique product that is equitable, environmental and responsible,” said MileMeter President Chris Gay, during his presentation.

Gay, founder of Dallas-based MileMeter, was invited to weigh in on by-the-mile insurance because MileMeter continues to be the first and only company in the nation offering by-the-mile insurance without installing tracking devices that raise the cost of insurance, violating consumer privacy.

"MileMeter offers the best Pay-As-You-Drive policies currently available in North America. It’s easy to use, affordable and gives motorists the maximum possible incentive to reduce their annual mileage," said one of the panelists, Todd Litman, founder and executive director of the Victoria Transport Policy Institute.

“MileMeter is setting the standard for the entire industry by directly servicing overcharged and underserved drivers,” Gay noted. “If MileMeter does its job well, other insurance companies will soon follow our lead so that Texas drivers aren’t the only ones benefiting.”

Working to address challenges such as global climate change, Ceres acknowledges that PAYD insurance is one way to provide consumers with an economic, green incentive to limit miles driven and receive a reduced rate in current policies while simultaneously helping the environment. Consumers respond to incentives, and with appropriate incentives Ceres argued governments and corporations can encourage more sustainable, responsible consumption.

During the presentation, Gay also outlined how MileMeter’s transparent pricing creates the most effective auto insurance incentives to reduce vehicle miles traveled (VMT). MileMeter’s radically different business model allows motorists to greatly reduce insurance premiums simply by driving fewer miles. For those driving up to 10,000 miles per year, expected savings can average 25 – 75 percent on most policies.

Gay explained, “MileMeter’s by-the-mile auto insurance is convenient, customizable and rewards good social and environmental behavior. The obvious consumer benefit is cost savings but PAYD auto insurance also spurs fewer miles driven on the roads, leading to fewer tailpipe emissions and traffic injuries, less toxic road runoff, and less demand for road and parking lot construction, which helps reduce urban sprawl, improve air quality and fight climate change.”

CNN Article on Pay As You Drive

2009-05-23T14:31:00.000+10:00

An interesting article appeared on the CNN site last Friday (22 May) by Bengt Halvorson.

It deals with a number of the issues facing telemetry based Pay As You Drive.

Observing behaviour changes behaviour. This is a great benefit for a box in the car that observes how people drive.
Privacy is a major concern, especially with a box that tracks where you drive.
The article is critical about Progressive's MyRate's lack of differentiating between cars that behave differently. I'm not sure that is fair. If a driver accelerates or decelerates faster or slower, it has an impact on the risk of having an accident.
The article says Allstate, Unigard and Hartford are testing usage based policies!

The article is reproduced below. The original is on this link.

Car insurance savings come with 'Big Brother'
(AOL Autos) -- Tim Goodwin doesn't spend much time behind the wheel of his 2004 Chevy Tahoe. Even though he only covers about 3,000 miles per year -- using it just for weekend trips -- he had, until recently, been getting no special deal on his insurance for driving so little.

Six months ago, the Springfield, Missouri, property supervisor found a policy that gives him a break. So far he's saved about $48 -- or ten percent -- over six months compared to a traditional premium.

There's a catch; his insurance company, Progressive, is monitoring every move he makes behind the wheel.

Goodwin is fine with it, and says that just knowing that a small transceiver is reporting his driving behavior back to the insurance company helps him drive more carefully.

"There's this 'Big Brothe'r thing, but it's good," Goodwin said. "Since I know I'm being watched, I'm on my best behavior." AOL Autos: Check out other Big Brother devices

Goodwin noted that he's now less likely to speed.

"You'll, in effect trade a degree of privacy for a lower rate" in such a pay-as-you-drive policy, explains Mike Barry, vice president of media relations for the Insurance Information Institute. "They know not only how many miles you drive but how and when you drive."

For now, MyRate is the only widely available pay-as-you-go auto policy -- available now in nine states (Alabama, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Missouri, New Jersey, and Oregon), with at least three more expected by the end of the summer.

There are "tens of thousands" of drivers already enrolled, according to Progressive, and one in four existing customers of the company who've become eligible for the program have opted in.

Progressive says that MyRate may save up to 25 percent versus a traditional premium if you travel less than 10,000 miles per year, are a defensive driver, and rarely drive past midnight.

What bad behaviors does the system look for? Sudden starts and stops, and driving during higher-risk times, will raise the rate -- by up to 9 percent in states where a surcharge is permitted.

Progressive says that if you drive even once a week between midnight and 4 a.m. the policy probably isn't a good choice. On the flip side, smooth rural drivers who cover more than 15,000 miles a year could also save 20 percent or more. AOL Autos: Can your car last 1 million miles?

Several other insurers, including Allstate, Unigard, and The Hartford, are testing usage-based policies; and GMAC Insurance now offers a low-mileage discount of up to 54 percent to drivers of late-model GM vehicles -- with mileage reported by the onboard OnStar communication and safety system.

Another company, MileMeter, offers a system (only in Texas) through which customers pre-pay for a certain number of miles of coverage, as verified simply through the vehicle's odometer reading. AOL Autos: How to cut your insurance in half

In various forms, pay-as-you-drive policies are already offered in Canada, the U.K., Japan, Israel, the Netherlands, and South Africa, but for now the wider adoption of such policies in the U.S. has been slowed by the differences between in requirements in each state.

Why so long coming?

Tully Lehman, a spokesman for the insurance industry in California, a state that has recently laid the framework for pay-as-you-drive policies, says that the biggest concern with surveillance-based systems like Progressive's is privacy.

But there are also worries with the misinterpretation of the driving-style data.

"For instance, when the company sees hard braking," it could be driver inattention or carelessness, Lehman said. "Or, it could be a dog in the road." It also could be any number of things that have nothing to do with the driver's behavior.

Another issue is that the very vehicle you drive might not qualify you for much of a discount if it has touchy brakes or spirited acceleration; the company doesn't correct for the fact that some cars are more "responsive" than others. A Buick driver, for instance, might get more of a discount than a Mini Cooper driver simply because of the way the vehicles respond. MyRate doesn't differentiate between drivers, either.

MyRate users are able to log in and see an assessment of their driving style, along with charts and graphs and a running trip record.

While privacy advocates might already be up in arms over the data set -- which won't be shared with third parties but could be kept for up to six years -- they'll be somewhat relieved to hear that MyRate doesn't have GPS capabilities. The system knows "when" and "how" you drive, but not "where." For that, we'll leave the controversy to the GPS locators in cell phones.

Tracking exactly where users go would create serious privacy concerns, admits Steve McKay, product manager for MyRate

"Knowing location wouldn't add a lot to the predictive value either," McKay said.

The state of California in 2006 outlawed the pricing of policies by zip code, along with several other factors.

Although the future of pay-as-you-drive plans might rest in GPS-based systems that do track where you go, it's now looking like a distant future. California has also recently adopted new regulations that set the framework for pay-as-you-go policies, but the state's insurance commissioner, Steven Poizner, is especially conscious of the privacy concerns that the technology brings.

"I will not approve any auto insurance policy that aims to utilize GPS devices in order to obtain location data from consumers," Poizner said in a release last year.

State and federal governments also have their eye on GPS systems as a new way of figuring road tax in the future. With the projected long-term market swing away from conventional gasoline vehicles toward more efficient plug-in hybrids and electric vehicles, many state officials are worried about dwindling revenue for highways.

Currently, road taxes are collected via a per-gallon gasoline tax. Just earlier this year, U.S. Transportation Secretary Ray LaHood proposed a mileage-based method for calculating road tax, and several states, including Oregon, have tested a GPS-based system that would assess road tax.

Nudges drivers to be safer and greener

Drivers might simply choose pay-as-you-drive policies to get a break on their premium. But it'll likely save them even more in the long run; because they'll probably drive their cars gentler, get better gas mileage, put less wear on their vehicles, and be less prone to getting tickets.

"Just leaving the device in your car changes your behavior," Allstate spokesman Raleigh Floyd said. Because the company is scoring the driver's actions and there are measurable rewards for good behavior. "It becomes more game-like--and the benefit is that you're a safer driver." AOL Autos: How to avoid a speeding ticket

Even Goodwin admits that he finds restraint in his Tahoe when he wouldn't have before.

"Now when I just want to floor it, I don't," he said.

They're likely to reduce their trips as well. According to a report from the Brookings Institution, if motorists paid for their auto insurance by the mile, driving would decline by about eight percent nationwide, significantly reducing carbon-dioxide emissions and gasoline consumption, and nearly two-thirds of drivers would pay less for auto insurance. AOL Autos: How to get 100 MPG

Major environmental groups and safety advocates are also on board; the ten-percent decline in driving anticipated by the Environmental Defense Fund would not only reduce air pollution and toxic runoff but also translate to saved lives, through a 17-percent reduction in crashes.

Even Progressive agrees that a pay-as-you-drive policy won't be right for everyone. Those who value their privacy or want to drive however they please can rest assured; there will still be traditional policies for the foreseeable future, experts say.

But if you're willing to take your insurer along for the ride, you might soon have a lot of money-saving options.

Accord Loma Conference May 2009

2009-05-21T17:35:00.003+10:00

Exigen Insurance Solutions invited me to speak at the Accord Loma Conference in Orlando Florida. The slide pack is uploaded below. The full talk will be available on the Accord Loma conference site in about a week's time, including audio and the questions afterwards.

What was interesting in terms of the questions afterwards:

The focus is strongly on telemetry / device driven Pay As You Drive.
The concept of the Multiple Prisoner's Dilemma struck a chord with the audience. It is a real problem.
The design of our Real Insurance Pay As You Drive also received a lot of attention.

Changing the world, all at once!

2009-05-09T13:04:00.005+10:00

Shai Agassi is the kind of guy that makes you think of the famous Margaret Meed quote: "Never doubt that a small group of thoughtful, committed people can change the world. Indeed, it is the only thing that ever has."

In a really mind-blowing TED talk he talks about his vision to change transport in one big swoop to electric cars. He compellingly talks about figures having to be either infinite, 100% or 0%. No half measures. He says that Kennedy did not say the US will take man 20% of the way to the moon and then have a 20% chance of bringing him back. It was an absolute undertaking.

Similarly, in terms of environmental measures: Stop talking about half measures. Start talking in absolutes. Decide to solve it 100%. Make it infinitely scalable. Have 0% of the emissions we have today.

In the talk he explains his thinking that for electric cars to work (using today's technology) you have to think about the solution outside of just the car. So don't solve the problem inside the car only. Make the environment adopt the car. That means charging stations wherever a car can be parked. It also means replacement batteries at something that resembles a mix between a gas station and a car wash.

From the talk he has Nissan-Renault's backing, as well as Israel and Denmark as countries to do it in. Inspiring stuff!

It is worthwhile to listen to, and made me think: What lies ahead for insurance? What impact does this wholesale change to private transport in a country do for the car insurance industry in that country? Worthwhile to ponder.

Shai Agassi has been named by Time Magazine as one of the world's most influential people.

His business is appropriately called "Better Place".

The TED talk is on this link: TED

A study by Quality Planning proves Pay-As-You-Drive

2009-04-13T17:29:00.000+10:00

Quality Planning Corp (an ISO company) has published a study that shows Pay-As-You-Drive works in a pretty compelling way. They studied close to 500,000 cars over a three year period, and found that cars who drive less cost up to 44% less to insure than normal. That proves that if you drive your car less than the average, you are most likely subsidising others when you are paying your insurance premium. Not a good deal.

The following graph shows the results from Quality Planning's study:

The study compellingly proves the benefit of Pay-As-You-Drive for consumers. Sadly, the multiple prisoners' dilemma facing insurance companies means it will be a long time before consumers have more than just one or two providers meeting their needs. In Australia Real Insurance has been providing Pay-As-You-Drive insurance for close to a year, and is still the only provider.

The full article from Quality Planning Corp can be read here. Some quotable quotes from the write-up:

"the recent study reveals why both consumers and companies get a better deal when auto insurance premiums are calculated in relation to miles driven."

"During today’s challenging economic times, many consumers are driving less — and as a result, they expect their auto insurance premium to fall. However, many insurers are simply not able to respond to that dynamic."

"Clearly, annual mileage should be a major determinant of auto insurance pricing. And drivers who drive less should be rewarded accordingly."

"Today, it’s easy to integrate accurate annual mileage verification into the auto underwriting process, using the best available techniques. Insurers who do so will certainly outperform their peers.”

Thank you to Todd Litman for sending out this information. For very comprehensive information on Pay As You Drive see Todd's TDM Encyclopedia.

Julian Beardsworth from EMB gives 10 reasons to switch to telematics

2009-04-13T16:03:00.000+10:00

EMB is starting to be a commentator on Pay As You Drive. Julian Beardsworth (bio) posted a news item on their website recently that gives a good old fashioned list of 10 of making the case for telematics. It is a good list (I particularly like point 5...):

Ten reasons to switch to telematics
When Norwich Union put its pay-as-you drive insurance scheme on hold some observers concluded that it was just one of those ideas, like the hovercraft, that catch the imagination but ultimately disappoint. Julian Beardsworth of EMB thinks otherwise. He believes that telematics-rated motor insurance is inevitable, desirable and will appeal to customers. Here are his ten reasons why

1. It works
All drivers can spot high-risk driving both in themselves and others. Reckless, unskilled and over-cautious driving are dangers that can be observed every day. So it’s hardly surprising that using telematics to monitor when, where and how we drive can differentiate high-risk from low-risk drivers to a remarkable degree. Norwich Union reported a 30% drop in claims costs for telematics, which implies that it doubled the quality of risk assessment. Any insurer having twice the ability of its competitors to underwrite and price risk can take the market by storm.

2. It’s getting cheaper and cheaper
Everyone is familiar with the reality of “Moore’s Law” that computer processors double in power every eighteen months. Similar observations have been made about data transmission capability and data storage. At the same time, computer costs are reducing in real terms. EMB’s observation is that telematics hardware and data transmission costs reduce by a factor of six every five years. A telematics device that cost £300 in 2003 could be delivered for £50 in 2008 and is heading for £8 in 2013. At some point soon the economics switch to “why wouldn’t you?” rather than “why would you?”.

3. DIY installation
Up to now the cost of installation has been prohibitive, but not any more. A solution has been found in the form of a device that is mailed to the customer and simply plugs into the OBD II port – a standard on cars sold in the EU since 2000.

4. DIY re-installation
And when people change their cars the telematics device unplugs from one and plugs into the other – it sounds trivial but is another massive shift in the economics of telematics.

5. Telematics doesn’t have to be invented in the UK
High-risk and low-risk driving look the same the world over. So, when an insurer cracks open telematics risk assessment in an insurance product in the US or Germany or South Africa, it could very soon migrate. Telematics technology could easily move into the “plug and play” space in the UK and everywhere else, and it would require little or no modification. It only takes someone somewhere in the world to make it work for it to come to the UK.

6. And that someone might just be Progressive in the US
Progressive may have already cracked it. Progressive are a focused motor insurer and one of the largest players in the US market. They’ve had two forays into telematics on a pilot scale, but now they’re rolling out a telematics product countrywide – authorised and selling in ten states and counting. Of course, they could be calling the industry’s bluff, but they have a strong track record of successful innovation. Insurers doing nothing about telematics today are effectively betting that Progressive will fail.

7. Customers like telematics
Safer drivers know who they are and will buy telematics so that they can benefit from their lower risk rating. The threats to privacy cited by politicians and the media are politically correct and perceived to be populist – but everybody knows that simply carrying a mobile phone already reveals your location. And the protection given to data by law is something that no commercial enterprise can afford to let slip. How many times have details about the location (as opposed to the content) of a mobile phone call made for embarrassing headlines? I can’t remember a single instance.

8. It makes driving safer
People drive more safely when they are being monitored. The evidence so far is that cars with telematics have fewer accidents. The very fact of being observed brings about improvement. I’ve had telematics in my own car and, yes, it changed the way that I drove.

9. It decommoditises motor insurance and improves customer relationships
Individual customers will ultimately get individual prices with telematics insurance products, using personalised data. And the way that customers are identified as suitable for telematics will encourage behavioural and values-based marketing. This offers insurers a platform on which to build stronger customer relationships.

10. It cuts claims costs
Having details of the time, speed and driving actions can help claims handling. Fraudulent whiplash claims from third parties have been successfully challenged by demonstrating that the collision was at a snail’s pace. Stolen vehicles can potentially be tracked down. Disputes over liability will be simplified.

Julian Beardsworth is a director at EMB, the actuarial and business consultants.
Julian.Beardsworth@emb.com

Some other EMB posts:

1. Telematics' time is coming

2. Telematics in the fast lane (a briefing paper)

World-wide Insurance Activities against Climate Change

2009-04-04T13:12:00.000+11:00

The Ceres report on Insurer Responses to Climate Change has just been published. It is an updated version of the same report published 2 years ago. The report states that the insurance industry is in the front line of Climate Change, and the report makes for interesting reading.

Ultimately the Insurance Industry's interest in climate change lies in the volatility of underwriting experience. That means the losses caused by large scale natural events. In Australia we've experienced significant losses over the last 2.5 years, starting with the floods in Newcastle, and including the Blacktown hail, Brisbane floods, Victoria fires, and just large scale storm activity. In the long term the Insurance Industry needs to be profitable in order to attract capital. It therefore needs to deal with events causing losses. If the long term trends are changing, the industry needs to respond if it wants to stay profitable.

From a society perspective, we want to improve our disaster resilience. I have been amazed by the response to the Victoria Fires. It clearly was a terrible event and affected people in a most horrible way. The response to it has been overwhelming. The money raised for the event in a very short space of time nothing short of incredible. Nothing can ever replace the lives that have been lost, but the society will do a relatively good job of restoring the property damage. Insurance played a big part in that.

Contrast that with the widespread floods and destruction in Myanmar in May 2008. Some 90,000 people are known to be dead, and another 50,000 just missing. The natural disaster quickly turned into a man-made disaster with the poor handling by the Myanmar government of aid, and actually being slow or reluctant to issue visas for foreigners coming to help. A terrible example of a disaster against which the world was not resilient.

From the Ceres Report, some points of interest:
The scope of activities identified is wide. It ranges from disclosure, to product innovation, to carbon offsets, to industry participation, to leading by example.

The Ceres report identifies 643 specific activities from 246 insurance entities from 29 countries. A 50% year-over-year increase. The number of product innovations increased by a factor of 2.5, and is the biggest contributor to the increase in activities.

According to the report there are now 24 companies world-wide offering Pay As You Drive Insurance, with discounts of up to 60% over normal insurance.

Disappointingly I think only 13 micro-insurance programs. Micro-insurance is very important for poverty alleviation efforts. We all have great protection in developed countries should something go wrong. Not the same in poor countries. The report identified microinsurance
products covering 7 million policyholders. The purpose of these products are to respond to food and water shortages in rural areas of South America, Africa, and Asia.

Also interesting that the report says only 9 companies offering carbon offsets to their customers. Real Insurance's Pay As You Drive has a carbon offset option.

Also interesting the report says European insurers are much more advanced than their American counterparts. The exception in the US is AIG of all companies! AIG is progressive on the Climate Change front. So they may have broken the financial system, but at least they're saving the planet...

Another very interesting initiative is from Progressive. They've offered a $10m prize for efficient motor vehicle design. It is a pity that the auto industry is under so much pressure though.

The report does contain some numbers on Pay As You Drive successes, but it is unfortunately still sketchy. Nevertheless, the table is below:

The original Ceres report can be found here.

A New York Times write-up of the report can be found here.

Hollard South Africa's Pay As You Drive

2009-03-25T20:16:00.000+11:00

The following is an infomercial from Hollard in South Africa. A 2 minute infomercial that explains some details around how the product works.

Brand new "Pay How and Where You Drive" product from MiWay

2009-03-18T06:19:00.000+11:00

A brand new Pay How and Where You Drive (PHWYD) product has been launched in South Africa. It is called MiDriveStyle and is by a company called MiWay. They’ve got a highly entertaining advertising campaign.

There are a number of things that are interesting about the product:

It is device based, with a GPS.
The device has a peculiar name. It is called a Zhaker(!?).
The device does emergency management. So when you are in an accident it “calls home” and gets help.
The device also lets you know if you run low on battery.
The most peculiar thing about the device is that it emits a noxious gas when tampered with or when it loses power! So it tells you you’re running low on your battery, and if the battery runs out… Bad smell. I am not so sure about that feature.
You can use the Zhaker to “red-line” areas. So you can tell the device that you don’t want your daughter to go anywhere near the house of that annoying boyfriend…. Interesting.
The information can be used to fill-out your tax returns. That will be neat in Australia.
You can check on the website where your car is. That clearly comes with all the privacy concerns that haunt location based devices.

The website is still quite uninformative otherwise. It is not clear as to how the pricing works. The device I hear is very expensive, and has an ongoing monthly cost, which will eat into potential savings.

MiWay is an innovative company. It will be good to see how this product develops.

It is well worth a look: MiWay.

Progressive news item on MotorWeek

2009-03-10T20:06:00.000+11:00

This clip was on MotorWeek, and discusses Progressive's MyRate product. It is a good clip to watch. It goes into quite a bit of detail on the product itself, and the consumer dynamic with the actual customer is informative. I also thought the web interface with the feedback on driving behaviour is very interesting.

nuride - What a fascinating concept!

2009-02-27T23:13:00.000+11:00

nuride is a US online community that has already built up a base of 40,000 members. The premise of the community is that you register, and then record trips you have saved by either car pooling, taking public transport, riding your bicycle or even telecommuting. For each trip you score reward points, which you can redeem for discount vouchers, tickets to shows, etc.

The practical use of the site is to connect to other people that have the same commuting needs as you, and car pooling with them. It looks like it is a particularly useful tool for large employers with many staff in one place. So you go onto the site and say you are traveling to say Swiss Re's offices. You link up with someone in your suburb that also travels to the same place that you did not know of. So obvious.

The reward benefits are sponsored by companies. I assume they do that either for getting feet through the door or out of a concern for the environment.

The cool thing about the site though is the connection to other commuters for car pooling purposes.

I hope their members know about Pay As You Drive insurance....

Coverbox discussion

2009-02-25T20:22:00.000+11:00

There is a blog entry on Smart421 that discusses Coverbox and the implications for commoditization through Coverbox. It is a good perspective and a worthwhile read.

The blog posting is here.

Pay As You Drive in India

2009-02-06T14:35:00.001+11:00

Three insurance companies are talking about launching Pay As You Drive in India. As with all things in India, there are a large number of cars. There are also massive insurance companies, most of them previously owned by the government. In the article below it describes what two of the companies are talking about doing. HDFC ERGO talks about a product similar to the Real Insurance product, but with a device monitoring mileage. ICICI Lombard points to a product more similar to the "paused" Norwich Union product.

Source:

Motor cover convertibles on the way
Customers opting for this usage-based insurance will be asked to shell out an advance premium and indicate the number of kilometres they were likely to drive during the period of the cover, usually one year.

Have you felt cheated about the thousands of rupees you forked out as motor insurance for your car all these years when it barely stirred out of the driveway? Have you been frustrated by the one-size-fit-all nature of most motor insurance products, but had little choice other than put up with it?

That may be about to change, as rising competition forces insurance companies to try and distinguish their policies from those offered by rivals. Usage-based insurance is all set to debut in the Indian motor insurance market soon, as the country joins developed nations such as the United States, Europe and Japan in introducing what can be simply put as pay-as-you-drive (PAYD) insurance.

As the name suggests, the way this insurance product will work is simple; much like a pay-as-you-go or pre-paid mobile connection.

Customers opting for this usage-based insurance will be asked to shell out an advance premium and indicate the number of kilometres they were likely to drive during the period of the cover, usually one year. Once the originally-indicated distance is travelled, customers will have the option of topping it up further, and if the distance is less, the customer is refunded the extra payment.

“We are working on a number of add-on covers, including PAYD,” Ritesh Kumar, MD & CEO of HDFC ERGO General Insurance, told ET.

Add-ons are additional insurance that can be bought for a little extra premium on the basic premium.

For PAYD to work, the insurance company will ask customers to pay a premium based on the distance they are likely to drive during the year and install a small black box type of gadget inside the insured vehicle which will track the distance actually travelled.

“After a year, the individual will be either asked to pay an additional premium if he has driven more or we may refund him the extra premium if he has driven less. However, if there is an accident during the cover period, the insurer will pay the sum assured for repairs,” said Richard Wulff, HDFC ERGO chief underwriting officer.

HDFC ERGO is not alone in thinking about such a product. General insurers such as ICICI Lombard and Bajaj Allianz are also examining similar policy products.

“We are also evaluating the product which is very popular in the US. Under this system, every car will have a global positioning radio system that will send data, including average speed, the types of roads on which it runs and the driving pattern. The premium will be based on all these parameters,” said N Eswaranatarajan, head of motor insurance at ICICI Lombard.

A PAYD system has mixed success globally. While Mr Eswaranatarajan pointed to the policy's popularity in the US, Britain's biggest insurer Norwich Union dropped the policy last year after tepid response from customers.

Customers who joined had a gadget fitted inside their cars which constantly fed back data on where and when they were driving using satellite technology. This was found too intrusive by some customers.

Insurance industry officials in India said while legal decks were also cleared for insurance companies to launch such policies in India, there remained significant roadblocks, not least the effective monitoring of the mileage the vehicle has driven.

“There are two typical problems - our market, which is not very mature, may have issues with checking the mileage the vehicle has done initially when the product is sold and the subsequent monitoring. Additionally, prices for some makes of popular car models are already low. We are trying to work our way out of these problems,” said Vijay Kumar, head of motor insurance at Bajaj Allianz General Insurance. “We are deliberating on the PAYD policy,” he added.

Coverbox - A Pay As You Drive Aggregator!

2009-01-14T06:50:00.001+11:00

One of the interesting things about the UK insurance market is the success of aggregators. An aggregator is an intermediary that sells you insurance from a number of different companies either over the phone or the web. It is not quite a broker in a traditional sense, but similar.

Aggregators have been highly successful. And an aggregator has a compelling consumer proposition, as the consumer can get a number of prices from one place. So for one investment of say 10-15 minutes, the consumer can get a number of different quotes, instead of calling around to many different companies to get the same result. But more on aggregators and specifically aggregators in Australia at another time.

In the UK Coverbox now provides Pay As You Drive insurance on an aggregator basis. The product is a telemetry-based product: They fit a black box to your car, and then charge you retrospectively for when and how far you drove your car. The black box is also a theft recovery device, and they claim 98% recovery within 24 hours. It would be interesting to know how much of that 98% is joy riding and would have been recovered anyway.

The product therefore at first glance seems similar to the Norwich Union product (which the press release says was very "popular"...).

The branding is good. The name "Coverbox" is highly descriptive of what they do. They currently have 4 insurers on their panel (The Co-Operative, Allianz, Equity Red Star and Groupama). They say they will add 2 more.

I hope they do better than Norwich Union. The concept of an aggregator Pay As You Drive certainly has consumer appeal.

The description of what they do (from the coverbox.co.uk website) reads as follows:

You could save money with Pay As You Drive (PAYD) comprehensive car insurance from coverbox. Coverbox treats the insurance cost like a utility bill. At certain times of the year you will drive more miles than forecast and at other times less, just like you use more water in the summer than in the winter. You can control your costs once we install a free coverbox device in your car, still paying for your insurance monthly or annually. Get a quote from our panel of leading insurers to see if you could save money. Coverbox also gives you theft tracking - 98% of cars stolen are retrieved within 24 hours.

The article from myfinances.co.uk is below:
Pay-as-you-drive' insurance policies are about to take UK motorists by storm, according to one provider.

Although the concept of using a 'black box' in-car tracker to measure mileage has been around for a while, take-up has been slow and pioneer Norwich Union 'paused' its policy last year due to the cost of providing the service.

More Than still offers a similar policy for young drivers, Drive Time, but until now consumers have had limited alternatives.

However, new technology with the added bonus of theft-tracking means several insurers are now offering policies through Coverbox, giving consumers more choice.

Customers logging onto the site receive a selection of quotes from insurance companies offering the service, including The Co-operative, Allianz Insurance, Equity Red Star and Groupama Insurances.

Coverbox said insurance will ultimately be offered by six big insurance brand names, with the remaining two insurers to be confirmed shortly.

Sandy Dunn, chairman of Wunelli, the company behind Coverbox, said: "We believe both the consumer and the motor industry are now truly ready for pay-as-you-drive insurance.

"Others have tried before with older generation technology but our solution is new-generation, highly-capable and based on integrated security solutions specified and proven by the leading car manufacturers in Europe and Japan."

Coverbox calculates the cost of insurance based on the driving habits of the customer, then fits a box to their car that will calculate the actual mileage.

The customer then receives monthly bills based on their usage.

"In summary, it will work very much like a monthly utility bill - the key difference, though, is that low risk drivers who use their cars little and in off-peak periods are not penalised by the actions or accidents suffered by higher risk drivers driving at higher risk times," Mr Dunn added.

"We believe a significant number of Coverbox customers will save a great deal of money compared to the cost of 'traditional' car insurance premiums."

James Harrison, chief executive of comparison website Insurancewide.com, said: "Coverbox could be a good deal for younger drivers with low mileage. This kind of scheme didn't work for Norwich Union because the take-up was lower than expected, possibly because drivers were wary of the Big Brother type tracking device.

"However, Coverbox's impressive claim that its own device will recover 98 per cent of stolen vehicles will attract great interest and it may be far more successful. It's also flexible in that there's no age restriction and you can specify likely peak and off-peak mileage.

"For older drivers with average mileage, there are no clear advantages through Coverbox and drivers should compare its offer very carefully with other providers by scouring the market online. Comparing like-with-like is the absolute key to getting good value, it's not just about the lowest price."

Norwich Union said it currently has no plans to bring back its own popular pay-as-you-drive policy.

The End of All-You-Can-Drive Insurance

2009-01-06T18:02:00.000+11:00

A lot is being written, said and blogged about in terms of Pay-As-You-Drive insurance. Much of it is repetition of what has being said already, and Bordoff and Noel of the Brookings Institute have been well and truly quoted many times.

I came across a write-up by Rob Inglis in a blog called “The New Republic” which eloquently states the case again. What makes it worth mentioning though were:
a) It has a catchy title for traditional car insurance: “All-You-Can-Drive” Insurance, and
b) It has a really good discussion going in the comments section.

There are a number of misconceptions that were only partially cleared-up in the discussion.

Rural people will be penalized:
Untrue. Pay-As-You-Drive (PAYD) will not use mileage to replace all other factors, but to make risk pricing more accurate by using mileage in addition to the current rating factors. So the fact that people live rurally is already factored into car insurance pricing. What PAYD does is differentiate between low mileage and high mileage drivers in the rural area.

Insurance companies would have done it already if it made sense:
Untrue. The Multiple Prisoner’s Dilemma is the major factor that keeps them from doing it. Read the post on 22 November. Other factors include systems and regulations.

Progressive patents keep insurance companies from doing it:
Untrue. The opinion of carriers in the US is that the patents do not pose a barrier to them doing PAYD. See the diagram of the poll conducted amongst 90+ carriers in a recent Webinar. The stated obstacles in the poll were 46% systems, 20% privacy concerns, 18% cost of telemetry, 14% state regulations, and only 4% patent infringements. See Exigen for details.

Hurting vulnerable people is lousy social policy:
Untrue, within context. Hurting vulnerable people is not good. But subsidizing one group of people (high mileage drivers) through charging another group more (low mileage drivers), while at the same time creating a nasty externality that is akin to charging a flat rate for petrol regardless of usage, is lousy social policy. I have sympathy for people who will pay more. But the problem should be viewed in full context.

Mileage does not relate to risk:
Untrue. Simplistically, if you’re not driving, you cannot make an accident. The curves are not linear, and the curves differ for different profiles of drivers. Data and experience will fine-tune exact pricing over time. But the basic premise is sound AND meaningful.

The cost of implementing outweighs the benefits:
Untrue. Two solutions exist already that do not rely on telemetry or ongoing inspections. One is Real Insurance and the other Milemeter. Even for telemetry based solutions the cost of the technology is rapidly decreasing, and the device types are cheap and easy to implement.

The full posting of the blog can be seen at The New Republic.

Leaping ahead in Netherlands, sliding backwards in Manchester

2008-12-23T21:23:00.000+11:00

Pay As You Drive road pricing is closely related to PAYD insurance. Both are instruments that public policy makers can use to improve congestion, road usage and the costs associated with it. The concept of road pricing is charging road use on a usage base, and using the pricing to control or curb congestion. A good example of it is the inner London flat fee when you drive into London. A crude but effective way of making you think before you jump into your car and drive into London (like the traffic isn’t enough).

The problem with road pricing is that it is highly unpopular. I am always amazed that a change in toll fees for the cross-city tunnel in Sydney makes front-page news for a week (page 16 has children dying by the millions due to the Food Crisis). The voting public hates it when something they have for free suddenly has a price on it. And that is the problem. It is politically challenging for a politician to introduce sound policy in this space, particularly when people have to pay for it.

Two recent examples of success and failure are in the Netherlands and Manchester. In the Netherlands they announced a bold and spectacular program to get every car wired by 2016 and have accurate road pricing, linked to type of road, time of day and type of vehicle. PAYD insurance is so obvious once you’ve made that mind shift. Add to this the fact that the Netherlands has the highest use of bicycles in the world (having no hills has its advantages…), and you have a society where transport is going to be seriously responsible.

Contrast that with Manchester, where a public referendum said no in very certain terms to a road-pricing scheme), to the tune of 4 to 1. It is being heralded as the last rites to road-pricing (and slated as being a major step backwards for the Government (who established a multi billion dollar fund to support this) and for other cities with similar plans.
It will be interesting to understand the dynamics of how the Netherlands went about it, and what the factors were that made it successful, versus the Manchester stuff-up.

So what’s the solution to the Multiple Prisoners’ Dilemma?

2008-12-06T20:46:00.000+11:00

Following the post on Multiple Prisoners’ Dilemma (see 22 November post), Justin Horner wrote to me and said I cannot just state a problem without stating the solution. Fair point. I don’t have the solution, but I can suggest some solutions:

From a Regulatory perspective the US is a fascinating place (in a morbid sort of way). It is legislated for example how you rate, meaning which rating factors you must use and what weights they must carry. So the easiest solution is: Mandate PAYD through regulation. Although it has been raised as a possibility in California, I think it is unlikely to happen though, and will definitely not happen here in Australia.
The Government and Regulators can do a few other things too. One of these is to waive taxes and duties on PAYD premiums. In Australia for example premiums are loaded with GST, Stamp Duty and in some states a Fire Services Levy. Waive these on PAYD policies and make them even more compelling for low mileage drivers. The tax revenue argument to justify this is that low mileage drivers are over paying for road usage anyway through normal taxation methods and car registration fees. Another argument is that it will shift people into PAYD quicker, meaning less driving (see 31 July 2008 post for the Brookings Institute paper on the impact of PAYD), resulting in lower cost of infrastructure for the Government, offsetting the lower tax collections on these policies. This will stimulate the market forces through increased consumer demand, which will in turn bypass the Prisoners’ Dilemma. There are a few other government interventions. The aim is to make the cost of car ownership as variable as possible. If car ownership becomes more variable, people will drive less, which will make PAYD insurance even more attractive. There are two sides to this, described in 3 and 4 below.
Make the existing fixed existing cost variable. The prime examples of this in Australia are annual registration fees, which runs into a few hundred dollars, and compulsory third party (CTP) liability insurance, with currently regulated pricing. Clearly low mileage drivers are getting a raw deal on CTP.
Toll the roads. If I drive down to the local supermarket (or almost anywhere in Sydney, as long as I avoid the bridge and some of the motor ways) it does not cost me anything. And yet I am using something that costs money to maintain. I should be paying for it on a usage basis, as opposed to a taxation basis where my usage has no bearing on what I pay in taxes. So if there is a direct correlation between my driving and the cost of using the road, I will no doubt be more responsible. I will drive less, which will in turn make PAYD insurance even more attractive. The second aspect of this is that technology is required to do accurate tolling. This is where PAYD and tolling at least in theory can meet. All PAYD products (other than Real Insurance and Milemeter) uses a form a telemetry. That can double for tolling. It won’t be politically popular, but it will work.
The Government can offer insurance companies incentives. These incentives can be targeted to ease the cost of system and product development, roll-out of telemetry for PAYD solutions requiring telemetry or even assist with promotion. The political endorsement and promotion does not cost any hard dollars, and can do a lot to stimulate the development of the product. A framework around this is suggested by Jason Bordoff and Pascal Noel of the Brookings Institute.
There are also things insurance companies can do to solve their Prisoner’s Dilemma. Looking from the outside at what Progressive has done, I suspect their angle of attack is to offer a voluntary product where people get adjustment on their future premiums based on their driving in the past. This is a reasonably “soft” way of introducing it into an existing portfolio, and time will tell how successful it will be.

What will be great is to see politicians and regulators getting engaged on the topic, and stimulating the development of PAYD. Everyone is watching Steve Poizner (Commissioner of Insurance in California), who is actively developing policy for California around Pay As You Drive. Many of the US states are watching and waiting to see what happens in California before they act. Hopefully Mr Poiznier will have the courage of his convictions to do something incisive and robust. We wait with interest.

In Australia, where we have an up and running product working really well, there has been no government interest to date. We live in hope.

A Multiple Prisoner's Dilemma

2008-11-23T16:50:00.000+11:00

The concept of PAYD, or usage based pricing for car insurance has been around since 1920. The following is an excerpt from an email sent to me by Patrick Butler, Insurance Project Director at the National Organization for Women:

"The audited odometer mile exposure unit has been available for commercial fleets since at least the 1920s, was discussed by 1996 Nobel laureate economist William Vickrey in a 1968 paper, was the subject of a sex-discrimination lawsuit brought in 1986 by Pennsylvania National Organization for Women and documented in three Journal of Insurance Regulation (JIR) papers in 1988 and 1989, was described as the basis for an efficient pre-paid-miles personal car odometer system in a 1993 CAS Forum paper to support exposure unit legislation introduced in Pennsylvania 1990-1993, and so on.

All of these items are documented by papers and reprints available on the website www.centspermilenow.org."

So why is it taking so long for insurers to adopt Pay As You Drive. Progressive in the US had a pilot called Autograph in 1998. That is 10 years ago! Either the concept is flawed, or there must be another reason.

In terms of the concept being flawed: The concept of PAYD will be flawed if there is no meaningful relationship between how far a person drives, or how they drive, or where they drive, and the amount of risk they bring to the risk pool. The possibility of there being no meaningful relationship is counter-intuitive, but nevertheless possible. Published results of Progressive's Autograph pilot in Texas indicates a clear relationship between distance driven and risk. Furthermore, traditional insurance pricing does its best to capture driving behaviour, by looking at factors like age, gender, vehicle modifications, etc as proxies for risk. So it is unlikely that PAYD is not taking off due the concept being flawed. There must be some other reason. I believe there are two major reasons, and a number of smaller ones. This post deals with the first reason (Prisoner's Dilemma). The second big reason I believe is systems, and will be discussed in a future post.

Multiple Prisoner's Dilemma:

The concept of Prisoner's Dilemma is a classic game theory problem. The basic prisoner's dilemma is explained quite well in Wikipedia. What does that have to do with PAYD?

To answer this we need to look at the basic premise of the product: In traditional insurance, people who drive less, pay the same as people who drive more (all normal rating factors assumed to be the same). The reason for this is that traditional rating factors (age, gender, suburb, car make and model, claims experience, etc.) are crude proxies for the true underlying risk. Insurance companies have not used mileage actively as a rating factor, because of the difficulty of verifying mileage (mileage as a rating factor is mandated by law in California, but is not checked by insurance companies and a consumer can frankly declare whatever they want). So PAYD introduces accurate pricing for mileage, and by doing so low mileage drivers can receive a more accurate and fair premium.

If you are an existing insurance company with a large book of existing car policies, you most likely have a finely balanced book that is profitable, albeit with thin margins. Your pricing is working, and the cross-subsidies between high mileage and low mileage drivers are balanced. If you introduce PAYD you will charge low mileage drivers less (and a fairer price) and high mileage drivers more. High mileage drivers will most likely leave you and take insurance from someone else who still provides traditional insurance. As an insurance company you face the prospect of losing a large part of your book before you can replace it with low mileage drivers (where you are in fact competitive). That is a daunting prospect. You have a large infrastructure in place which you've built up painstakingly and which is well matched to your current size and volume. If you lose material volume your expense ratios will blow out, which will in turn very quickly eat through your thin margins, leaving you unprofitable. That is not an appetising scenario for any insurance executive.

So this is where the multiple prisoner's dilemma comes in. If nobody acts (i.e. nobody offers PAYD), then status quo remains, books remain finely balanced and life goes on. The first large player to offer it faces the uncertainties listed above, and may take some short term strain. After the short term strain however, the first mover(s) will start benefiting from attracting more and more low mileage drivers and having a competitive offer for arguably 50% of the market.

What does that do to the other companies? As their low mileage drivers start abandoning them, their book becomes unbalanced. They have less low mileage drivers to cross-subsidise their high mileage drivers. Over time their margins will erode, and arguably in time they will be forced to switch to PAYD.

The Prisoner's Dilemma is not a trivial problem for existing insurers to overcome, and I think it will take many years for them to do so.

PAYD Webinar archive

2008-11-07T16:48:00.000+11:00

On the 5^th of November the National Underwriter hosted a webinar on Pay As You Drive, titled:

PAY ONLY AS YOU DRIVE INSURANCE COMING READY OR NOT

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

It was attended by 280 people, mostly based in the US. Most of the major carriers were represented, as well as state regulators and consumer groups. The archive of the actual webinar can be found on http://www.summitwebseminars.com/exigen/Pages/default.aspx.

Some coverage for Pay As You Drive in The Australian

2008-10-29T17:11:00.001+11:00

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

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

2008-10-28T21:16:00.001+11:00

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

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

2008-10-23T03:20:00.001+11:00

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:

------

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.

--------

Smoke, Mirrors and Insurance Discounts

2008-10-05T20:52:00.001+11:00

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:

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.
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?

Getting Privacy Right in Pay-As-You-Drive

2008-09-21T20:40:00.001+10:00

Pay-As-You-Drive is a concept whose time has come. It is an amazingly obvious concept, with wide benefits for consumers, the economy and the environment. The question is, why has it not taken off? It has been contemplated (I am told) since the early 1990s), and versions of it has been in test since 2000. It is only now that it being sold as a commercial product (as opposed to a pilot or test). Why has it not taken off yet?

Probably 3 reasons:

The technology has been too expensive to date for telemetry. Norwich Union as an example had to build the black box from scratch at huge expense. Technology is now very cheap and becoming cheaper.
Privacy concerns. People don't like being tracked. Not yet anyway. I don't entirely buy this reason – I think it is a storm in a teacup. Think about your mobile phone. You don't think your carrier knows where you (your phone) are always?
Too complicated. The first set of products was very complicated. The Norwich Union one charged differently for time of day, type of road and combinations thereof. Just too hard to understand. That plus the fact that premiums were charged in arrears, so if you go on a long holiday by road, you get a big bill from your insurer.
A Prisoner's Dilemma. But more about this in another post.

This post is about privacy. It is ironic that the only academic paper (that I can find anyway) on privacy and telematics was published in Australia in 2006. It proposes a solution where the onboard black box calculates the premiums in the confines of the car, and sends anonymous aggregate driving behavior data back to the insurer for modeling purposes, whilst preserving driver privacy. So let us get back to why privacy is a concern in the first place.

Why would people be concerned about privacy, with relation to -

How they drive,
When they drive, and
Where they drive?

The only reasons I can think of are because of wrong doings. Either you're driving too fast, breaking the law in some other way, or maybe you're adulterous. Presumably existing privacy laws will protect you from your spouse catching you with your pants down, which leaves only breaking the law. From a society perspective, we have strict road laws, with large amounts of money being spent on a police force and infrastructure such as speed cameras. Safe driving is everyone's interest.

So the privacy concern for insurance would be that the government confiscates a copy of the black box data and charges drivers for misdemeanors based on the data. Is that a bad thing? I don't think so. It is a lot better than the current system, and will result in much safer roads. So should legislation ban GPS based devices? Probably not. Ultimately consumers will vote with their wallets, and if they think they're at risk because they drive like hoons they will opt out. From an insurance company perspective, that is a good thing.

The flip side is however also an interesting conundrum. What if the insurance company knows that a driver speeds often? What if it is clear from the data that a driver is putting others' lives at risk? Does the insurance company become complicit in the crime? Does the insurance company have a moral or even legal obligation to report the driver?

Ultimately I believe that all insurance will be telemetry based (Real Insurance does not rely on telemetry, but rather on a trust-based system), and all cars will be tracked by the government for all kinds of reasons (including taxes, law enforcement and traffic control). In the mean time, while the technology matures and while privacy issues are still open, we need some runs on the board with Pay As You Drive. The article below is one of quite a large number in the US about the technology and privacy. The original source is the Insurance and Technology Blog.

Getting Privacy Right in Pay-Per-Drive

By Anthony O'Donnell
Sep 19, 2008 at 08:44 AM ET

Our recent report on Real Insurance's mileage-only pay-per-drive policy raised, once again, the question of what it will take to get drivers to use such programs. Industry observers have predicted the resurgence of telematics (the monitoring of driver behavior via telemetry) but privacy concerns continue to shape insurers' pay-per-drive strategy, as the Real Insurance example demonstrates. The Australian insurer bypasses the "Big Brother" fears associated with telematics-based pay-per-drive programs by dispensing with telemetry all together and relying instead on customer-reported mileage alone.

Progressive´s convenient MyRate device represents an improvement on more costly "black box" technology that has hampered adoption.

Progressive has struck a different balance, dispensing with location information, but keeping the telemetry. The Mayfield Village, Ohio-based insurer has also addressed cost concerns that dogged Norwich Union's use of Progressive's patented methodology and technology: getting the "black box" that registered the telemetry proved prohibitively expensive.

Through its MyRate program, Progressive supplies a small, portable device that can easily be plugged into the on-board diagnostic (OBD) port of many car models built after 1996. The device delivers a much richer portrait of driver behavior than Real Insurance's mileage-only plan by recording mileage, braking and acceleration, and time of day. The device periodically transmits that information wirelessly back to Progressive.

With MyRate, Progressive has struck a compromise: the insurer loses valuable location information that it could use for underwriting purposes, but the carrier thus reassures customers uneasy with the idea of their insurer (or anyone else privy to the recorded information) tracking their every move.

Will that be enough for Progressive's Pay As You Drive to take off this time? Though the carrier has not reported any business metrics, Progressive claims that customer adoption has been promising. MyRate is now available in seven states and one out of three eligible drivers (e.g., those whose car has an OBD port) have accepted Progressive's offer to use MyRate, the carrier says.

Pay As You Drive a solution for Motoring Hip Pocket Pain

2008-09-08T13:54:00.001+10:00

The article below was posted on News.com.au (by Alex Tilbury). It is write-up on how to avoid the economic squeeze of owning and driving a car. The reason it appears on this blog, is because it gives Pay As You Drive as one of the solutions to this problem!

Easing hip-pocket pain for motorists

By Alex Tilbury September 08, 2008 12:00am

OH NO, the fuel light is blinking again, and it only feels like yesterday that you filled the tank for about $75, the price for an average 50-litres.

People who drive a lot have been smacked hard by soaring petrol prices and are holding out hopes of lower prices as the world crude oil price drops down to $US107/barrel.

CommSec chief equities economist Craig James said recently that he expected petrol to drop to $1.40-$1.45 a litre, from close to $1.70, saving the average family about $30 a month.

But outside forces aside, there are simple steps motorists can take to lower their fuel bill.

Supermarket savings

The first and easiest way to ease the hip-pocket pain at the bowser is to take full advantage of petrol discounts from the major supermarkets.

Most commonly they equate to 4 a litre off the pump price at branded service stations if you have spent $30 or more on your groceries.

For a small car it may not seem like much but for a petrol guzzler that does a lot of kilometres it really adds up.

The competition watchdog has been looking into the so-called petrol price cycle and asking why petrol seems to spike dramatically over school holidays and at Christmas/Easter time.

The Australian Competition and Consumer Commission found the petrol cycle tends to show a sawtooth pattern, whereby prices rise rapidly over a short period and then steadily decrease, with "Cheap Tuesday'' the best day to buy during the week.

Tyre power

Keeping your car's tyres inflated to the manufacturer's recommendation will lower drag on the road and wear and tear. Your best bet is to buy an accurate tyre gauge, because the ones at service stations get knocked around.

If you don't use it, lose it

Many people use their car boot as extra storage space, and that's adding unneeded kilos to the car's weight. This reduces fuel efficiency by about 2 per cent for every 50kg.

Roof racks not in use should also be removed to lower wind resistance.

Remove heavy items such as golf clubs or even bulky prams that you don't need every day as they weigh the car down and add to fuel use.

Cool air

Avoid using airconditioning whenever possible. Airconditioning reduces fuel economy by 10 to 20 per cent when operating. Use the air ventilation system instead. However, at speeds of over 80km/h, airconditioning is better for fuel consumption than an open window.

Cheapskate

Mother of three Cath Armstrong who founded the website http://www.cheapskates.com.au only buys cars that are 12 months' old. They still have that new car smell and they are under warranty but "we are not paying full price and most of the glitches have been worked out''.

"Driving smoothly will help with your fuel consumption, so keep the revs under 2000 and you'll save petrol as the higher the revs your engine uses more fuel,'' she says.

"Avoid braking a lot and short journeys, too. Also, combine your trips, if you are doing the school run, that's when you also go to the post office or shops. Don't make lots of separate journeys.''

Comprehensive insurance

It's a huge bill each year, upwards of $1500 for a four-wheel-drive owner.

And if you have RACQ or Suncorp comprehensive insurance, give NRMA Insurance a buzz at renewal time. The cheeky southerners reckon if they can't beat your current insurer's renewal price, they will send you $50 for wasting your time. Too easy.

Many insurers offer a slightly cheaper car insurance premium to female drivers, because claims data shows women are safer drivers.

Pay As You Drive

An ideal solution for people who catch public transport and don't drive their car often or have a second or third car they use sparingly is http://www.payasyoudrive.com.au.

Underwritten by Real Insurance, part of the Hollard Group of companies, PAYD relies on the customer reporting the odometer reading in their car.

A 35-year-old female driver living in Corinda who drives an automatic Toyota Corolla hatch 2008 with an agreed value of $20,700 normally would pay insurance of $505. If she drove 5000km, the PAYD insurance would cost her $309, and at 10,000km the premium would be $399. A saving of $106 to $196 a year.

4WD = deep pockets

Owners of large, powerful four-wheel drives definitely pay for the privilege.

The RACQ's annual survey of private motor vehicle expenses shows big sports utility vehicles cost owners anywhere between $16,000 and $21,000 a year to own and operate.

Light cars at the other end of the motoring scale come in at the much more affordable $6600 to $8600.

The automatic LandCruiser turbo-diesel took survey honours as the most expensive vehicle to own and operate in Queensland, at $405.16 a week or whopping $21,068 a year.

By contrast the Hyundai Getz 1.4 litre manual hatchback, right, cost its owners a relatively modest $126.41 a week or $6573 annually and qualified as Queensland's cheapest car.

The motoring organisation surveyed the costs associated with 60 popular vehicles based on a five-year ownership period under average operating conditions for motorists travelling 15,000km a year.

RACQ vehicle technologies executive manager Steve Spalding says the cost of running a typical family sized car is now about $12,000 a year -- or 80 for every kilometre.

Unleaded and premium petrol have increased 29 per cent and 27 per cent respectively with diesel skyrocketing by nearly 40 per cent since 2007.

Excesses

You can sometimes save on comprehensive car insurance premiums by increasing the excess you would pay if you had to make a claim.

But NRMA Queensland state manager Brett Robinson warns drivers need to make that decision based on their own financial circumstances.

"If you opt for a higher excess you need to ensure you're in a position to cover the cost if you make a claim,'' he says.

Hybrids

The RACQ reckons hybrid cars do not stack up too well on economic grounds due largely to their substantially higher purchase price and the consequent effects on standing cost components.

"The petrol Civic is cheaper to own and run than the hybrid variant and the petrol-driven Corolla was cheaper than its closest equivalent of Prius hybrid,'' Mr Spalding says.

"It's doubtful if consumers will flock to buy hybrids unless their pricing is more closely aligned with equivalent petrol models or there are other financial `offsets' to improve their economic attractiveness.''

Suncorp also offers an eco-friendly motor vehicle insurance discount of 10 per cent on their premium for comprehensively insured hybrids powered by a combination of electricity and one or more other fuel types, such as the Toyota Prius or Lexus 450 GHS.

NRMA Insurance offers customers a saving of up to 10 per cent on their comprehensive car insurance for driving a recognised fuel efficient car.

Drive a hard bargain

One savvy car buyer is Lee-Ann Brighton, an internet marketing guru who wrote the ebook 'How I saved $39,856 in two years just by asking for a deal.'

She says the first thing in any negotiation to remember is "be prepared to walk away''.

"If you don't like the sales person, or don't feel comfortable with the deal, or just generally not happy with how things are going, then be prepared to walk away,'' Ms Brighton says.

"There is always someone else selling the same thing -- you need to deal with people and companies you are happy with.

"I hate dealing with fools, don't you? If a person is representing a product or service, then I expect them to know what they are talking about.''

Top 10 Tips for Fuel Economy

* Drive smoothly
* Watch your speed as higher speeds consume more fuel.
* Avoid prolonged engine idling.
* Avoid peak hour and other heavy traffic.
* Use your car's airconditioner sparingly.
* Have your car serviced regularly. Cars that run more efficiently burn less fuel.
* Keep tyres correctly inflated. Tyres that are low on air pressure have greater rolling resistance and that means your car's engine works harder, using more fuel.
* Don't carry unnecessary weight around in the car as this increases fuel use.
* Consider converting your car to LPG or buying a smaller, more fuel-efficient vehicle.
* Be sceptical about the claims made about add-on petrol-saving devices available.

Infrequent drivers pay less insurance

2008-09-05T05:37:00.001+10:00

Source: news.com.au

INFREQUENT drivers can now insure their cars for the kilometres they plan to travel after the launch of the Pay As You Drive (PAYD) insurance policy.

PAYD is the first scheme of its kind in Australia and has been introduced by insurer Real insurance.

It is tailored for good drivers over 25 who spend less time on the road than the average person.

Real Insurance chief executive Roger Grobler says the current car insurance system discriminates against those who drive less.

He said that with high fuel costs, traffic congestion and environmental concerns forcing people off the roads, infrequent drivers should be compensated.

"Low-mileage drivers are simply subsidising insurance costs for high-mileage drivers,'' Mr Grobler said.

"We want to give these people a fair go.

"Pay As You Drive reflects large-scale changes in motoring habits and in so doing, accommodates the changing needs of motorists.''

Unused kilometres can be rolled over year to year or refunded, while new kilometres for top-ups can be purchased over the phone.

If no claim is made for three consecutive years, PAYD customers will receive a 10 per cent rebate of the total premiums paid during that time.

While similar insurance products exist overseas, they require drivers to have their cars equipped with monitoring devices.

PAYD customers report the odometer reading of the car insured.

Real Insurance esimates that significant savings can be made with its product and could be as much $923 compared with an average traditional insurance policy for a 28-year-old male from south-west Sydney driving a $23,000 Holden Astra.

Real Insurance has been operating for three and a half years in Australia and the policy is underwritten by the Hollard Insurance Company.

Related Coverage

Infrequent drivers pay less insurance
NEWS.com.au, 4 Sep 2008
Cut rate for low-km drivers
Perth Now, 4 Sep 2008
Pay As You Drive Insurance launched
Business Spectator, 4 Sep 2008

Feeling like breaking the law? Take it “Ezy” with Laughing Out Loud insurance

2008-09-05T05:28:00.001+10:00

Should you be able to insure yourself against breaking the law? Well you can. Just buy a L.O.L. Assist policy (and not, it is not "Laughing Out Loud" insurance…). It is Loss of License Assist insurance from Ezy Insurance. And the tag line reads "Can you afford not to insure with us?"

On the one hand it is good to see some innovation in the insurance market, but on the other hand you've got to wonder: Surely this makes a joke of the law? No wonder the press is calling it "hoon insurance". And people are not happy about it. But "any publicity is good publicity" right? LOL!

Source: news.com.au

Anger at "hoon insurance"

NEW "insurance for hoons'' products that offer banned drivers big taxi and chauffeur-fare payouts have angered road safety campaigners.

Ezy Insure is offering a speeders' package that provides drivers who lose their licences over a series of traffic infringements $1000 a month for three months to cover the cost of alternative transport.

Penny Martin, of Working Against Culpable Driving, said the company was cushioning punishment for reckless drivers.

Ms Martin, whose son, Josh, and his friend, Jack Gilhooley, both 16, died in a car driven by a drink-driver, said: "It tells drivers it doesn't matter what they do because they won't be inconvenienced. This is the wrong message to be sending to drivers, especially younger ones.''

The RACV and traffic police described the policy as "perverse'' and "inappropriate''.

Ezy Insure states on its website it does "not condone speeding or reckless driving''.

But it adds: "If you lose your driving licence through an accumulation of points, we will assist you with the cost of alternative transport during your suspension.''

The cash could help motorists use taxis or hire a personal driver so they can continue life as usual, it says.

Cover starts from $10 a month and drivers must not receive more than three demerit points per offence.

Company director Alan Brewis said the policy was aimed at the "normal driver''.

"It's for the sort of person who is driving along and loses concentration, goes over the limit by a five or 10kmh and gets snapped,'' he said.

He would not provide figures, but said since the package was launched in January the response had "exceeded expectations'' and was "very, very popular''.

The RACV said Ezy Insure was obviously targeting a niche clientele, but it had picked the wrong market for this kind of product.

"It's hoon insurance -- this is a totally perverse offer,'' RACV public policy general manager, Brian Negus said.

He said the nature of the policy encouraged unsafe driving because motorists would feel protected against punishment.

"If you lose enough demerit points often enough to lose your licence then you have a problem,'' he said.

A police spokesman said the insurance package was a commercial matter, but it appeared to be "inappropriate''.

New York Times Letter on PAYD response to less driving

2008-09-04T05:11:00.001+10:00

The following is a letter from Jason Bordoff and Pascal Noel to the New York Times, and posted in their "Opinions Section".

There is not really anything new that has not been posted on this blog before, but the letter is eloquent and states a clear answer to the question of what happens if people drive less. The point being that current insurance pricing does not adjust efficiently for it, and insurance companies will make abnormal profits in the short to medium term in response to less driving. So Pay As You Drive is a much better consumer proposition in response to less driving.

Source: New York Times

Lower Premiums

"Hit Up for High Premiums" (Business Day, Aug. 23) reports that auto insurance premiums are rising even though Americans are responding to higher gas prices by driving less, which means fewer accidents and thus fewer insurance claims.

If auto insurance premiums were priced per mile driven rather than as a lump sum per year, drivers would automatically see insurance costs decline when they drive less and would not have to rely on insurance companies to respond to reduced driving with lower premiums.

According to our most recent research, such pay-as-you-drive auto insurance pricing would save two-thirds of households money on auto insurance, with an average savings for those households of $270 per car.

The system would also give drivers incentives to drive less, which would mean reduced accidents, congestion, carbon emission, oil dependence and pollution — benefits we estimate to be between $50 billion and $60 billion per year.

Jason Bordoff
Pascal Noel
Washington, Aug. 27, 2008

Published 2 September 2008.

Why Norwich Union pressed pause, and the problem with Telematics

2008-09-02T11:37:00.001+10:00

The section below is from a blog called "Grush Hour". It contains a transcript from an interview with Norwich Union's Erik Nelson. The interview itself is a worthwhile read, and gives insight into why they pressed "pause" on their version of Pay As You Drive. The key reasons are the cost of the GPS box. I think they also made a mistake in designing an over-complex product. But the thinking is well explained. It is also interesting to see how high their retention rate was.

From the Grush Hour:

It's old news by now that Norwich Union has withdrawn from the fledgling PAYD insurance market. Many were taken by surprise. Listening to spokesperson Erik Nelson explain why provides that perfect 20-20 hindsight for the rest of us. He also provides a fabulous insight into the value of this program. He still clings to one critical, false hope however. But let's hear from Erik first. He is interviewed here by someone from Traffic Technology International, and transcribed below for your convenience.

TT: Norwich Union's innovative telematics-based pay-as-you-drive insurance policy was withdrawn earlier this year because it was costing too much to operate, but as spokesman Erik Nelson reveals, the company plans to re-enter the market once economic conditions prove more favorable.

EN: What we did was we installed a box in their vehicles, a GPS-based box and that box tracks their movements, it tracks a couple of things actually. It tracks how far they were traveling, it tracks the time of day and it tracks where they were traveling - that is what type of road specifically they were on. The reason we are interested in a road – what type of road - is because we know for example that motorways are ten times safer than urban roads so we're able to give you better rate on motorways than driving on an urban road which is more dangerous. We also know for example that driving at night, especially for young drivers is much more dangerous than it is traveling during the daytime, so we take in the time of day, we take in the road that you're using and we're able to give you an individualized pence-per mile tariff. Now based on that, [and] the number of miles you drive, you get your premium.

TT: Did you find that people actually did change their driving habits as a result of this policy?

EN: That's a very interesting question. I think that's very difficult to answer, because of course we didn't know what they were driving like beforehand. What we did see was that people were driving over the time gradually a little bit less, I think they were very conscious of how far they were driving. The big thing is not about how far they were driving, though. It's about the times of day and they types of roads they were using. We definitely saw safer driving behavior. As a result our claims reduced by more than 30% which is a staggering statistic and a huge boon for road safety. But when you are able to incentivize, for example, young drivers not driving during the most dangerous times of day for them, when they are 10 times more likely to be involved in an accident at night, 14 times more likely to be involved in an accident at night on the weekend. And you incentivize them to take the taxi, take public transport or whatever when they go out during those times you see accidents drop more than a third, you're really on to something in terms of roads safety.

TT: I understand that renewals were really quite high on this, the policy seemed to be popular, yet you didn't carry it on from the Spring of this year.

EN: That's correct. The retention rate was at or above 90% during the time that we operated the policy, and feedback from customers was overwhelmingly positive. This is probably because customers were saving around 30% on their premiums. So we paused it because, simply put, because the economics of the policy don't work out for us right now. We thought that telematics was going to be a lot further along than it actually is. We thought that motor manufacturers would be installing telematics devices in the vehicles that they are making at the point of manufacture, but that did not come to be, and certainly not on the scale that we imagined. So instead of piggy-backing our little insurance policy on the back on existing piece of kit in a car, we were actually forced to provide the kit and install the kit ourselves which from an operating model point of view becomes very expensive and that is why we have temporarily withdrawn.

TT: Is it the case that the motoring industry just isn't ready for this yet?

EN: I don't know if it is the case of whether the motoring industry is ready for it. You'd have to speak with the motor manufacturers about that. Certainly it's the case from our perspective I think we were just a little bit ahead of our time. I think we as a company still have faith that the telematics industry will continue to evolve and at some point the time will be right for us to re-enter the market because their will be more telematics devices in vehicles and it will be much more sustainable for us to operate a policy such a pay-as-you-drive and we look forward to re-enter the market in a very good position at that time.

TT: Do you foresee that technology like that is very much going to be a key part of insurance policies in the future, like red-light boxes that stop cars maybe from driving over red lights, that sort of technology's going to be key?

EN: There are so many different ways that this technology can be used. As an insurer, our main objective is to find a way to calculate a premium. I think that is what pay-as-you-drive did incredibly cleverly and incredibly well and that is calculate a usage-based premium that motorists found fair and transparent in a way that has never been done before.

TT: Erik Nelson from Norwich Union. If you have any questions about this feature contact tt@ukintpress.com.

~~~

The false hope Erik Nelson clings to is that the automotive manufacturers will soon pre-install the telematics he needs. While this is technically possible, it is unlikely – mostly because we do not yet know everything about how we want these telematics to behave. To do insurance-only is an unworkable model – as Erik can attest. We'll need a whole fleet of cross-subsidizing services to make the pre-installation calculus work out. A package like OnStar causes the purchaser some pause before adding it to the invoice. We will soon be paying for road use via GPS, which itself remains unreliable for most telematics manufacturers in built-up cities. And why not handle parking while we're at it?

The assumption that we will record GPS tracks and process them off-board will hit a privacy wall. The counter assumption that we will pay everything on-board raises equal security concerns. The ISO standards to guide all this were completely scrapped a couple of years ago after nearly a decade of work. Only some components of the new edition, which I estimate to be about ¾ complete, will survive a hard privacy review in the EU and the US. What little the privacy advocates leave intact of the new standard will scare off most of the automotive manufacturers.

I believe all this will serve to delay the time when the automotive manufacturers will provide a "whole product" that an insurer could simply "piggy-back" on. The telematics market segment that will handle financial transactions (insurance, road-use, parking), must be "liability critical" – in other words, it must be critically reliable and repeatable – something we call "financial grade" GPS. The technology to do this is not the same as navigation grade GPS and the automotive manufacturers know this.

This, and the fact that there is already a world fleet of well over 500,000 vehicles that will need an aftermarket fitting, informs my prediction that the early years of PAYD will based on self-installed, specialized, "financial-grade" systems that also provide a couple of other payment services such as road and parking tolls.

Governator Schwartzenegger: “Enough power saved for 8 x LA”

2008-08-31T22:54:00.001+10:00

"Governator" Arnold Schwartzenegger is supporting a website called www.ecodrivingusa.com. Its premise is that with a number of good habits, anyone can reduce their fuel usage by being more efficient. It is compelling stuff. He says that if all Americans follow the practices explained on the website, they can save 15% on fuel. That is enough to power 8 cities the size of Los Angeles. Add PAYD on that, and it is another 4 LA's.

What follows below are their tips on how to be a better, more efficient driver:

Believe You Can Reduce Fuel Use and Emissions

Many of the best practices for green driving are subtle, but they can add up over a year. Making small changes in your driving can be the most effective way to reduce fuel use and carbon dioxide emissions, and the best part is you can do it today, with whatever vehicle you are currently driving. What you monitor, you manage...so start adapting a "lead foot" to a "feather foot" and keep track of the savings over several tanks of gas. Typically, practicing moderate levels of EcoDriving can reduce fuel use by an average of 15%.

Avoid Rapid Starts and Stops

Rapid starts and stops, often called "jack rabbit" starts and stops, use fuel and costs money at the gas pump. Gentle acceleration and braking can save more than $1 per gallon, according to the U.S. EPA, because smart driving can improve fuel economy by up to 33%. A few seconds of high-powered driving can use as much gas as driving for several minutes at more measured speeds. Ease into accelerations and brake smoothly, especially around corners, to raise your mileage the most. Avoid tailgating. When EcoDrivers™ avoid rapid starts and stops, they are not only practicing safe driving habits, but they're also reducing the energy required to get the vehicle moving again.

Keep on Rolling in Traffic

Slow-and-go always is better than stop-and-go, and not just to reduce traffic congestion woes. Maintaining a constant speed in your commute increases fuel economy, because it takes much more energy to move a stopped vehicle than to keep a vehicle moving. In fact, it can take 20 percent more fuel to accelerate from a full stop than from 5 miles per hour. Many truckers practice this approach to reduce shifting ten-speed truck transmissions. Drivers who try to achieve the highest mileage possible, often called "hypermilers", practice looking ahead down the road to anticipate stops and to coast as much as possible.

Ride the "Green Wave"

Traffic lights are often synchronized so that a motorist driving at a specific speed will pass through a series of green lights without stopping. Driving more quickly means you arrive sooner at a light and need to stop. Engineers optimize the traffic light timing to reduce congestion and improve traffic slowly. A steady speed often can help drivers avoid red lights, therefore keeping the car moving more efficiently.

Use Air Conditioning at Higher Speeds

Air conditioning can reduce mileage significantly, by as much as 20%. In fact, your air conditioner can consume up to one gallon of gas per tank to cool the vehicle. But driving with your windows open can produce aerodynamic drag, which reduces fuel economy. What's a driver to do? When driving at slower speeds (less than 40 mph), such as driving in urban areas, open windows are better. At higher speeds (over 40 mph), open windows use more fuel than the air conditioner, so close the windows and turn on the air conditioner. Another good idea is to take advantage of the "recycle inside air" feature. The air that is already cooled in the car is reused by the air conditioning system, instead of drawing hot air from the outside to be cooled.

Maintain an Optimum Highway Speed for Good Mileage

Highway driving that exceeds 60 miles per hour uses more fuel. According to the U.S. EPA, every 5 miles over the 60 mph level is equivalent to paying 20 extra cents per gallon for gas. Observing the speed limit and not exceeding 60 mph (where legally allowed) can improve mileage by 7-23%.

Use Cruise Control

During highway driving, cruise control helps maintain a steady speed. According to a test conducted by Edmunds.com, cruise control can provide a 7% average fuel savings, compared to driving without the device operating. These benefits come largely from driving on flat terrains, according to Edmunds. Cruise control maintains a constant vehicle speed. If you are driving on hilly roads, cruise control may cause your engine to speed up on climbing hills and slow down on the other side, reducing mileage, so use cruise control selectively. Using cruise control on 10,000 of the miles driven in a year could save you nearly $200 and save more than 60 gallons of fuel, according to the Department of Transportation (assuming $3 a gallon for fuel, 20 MPG, and 15,000 miles driven annually).

Navigate to Reduce Carbon Dioxide

Planning driving trips, even Saturday shopping, can help reduce fuel use and CO2 emissions. One of the easiest ways to plan trips is to purchase a navigation system to find the shortest distance to your destination. And, it can make the Saturday shopping trip more relaxing, too.

Avoid Idling

Idling uses gas, but because the car is going nowhere, it translates into 0 mpg. An automobile may burn more than half a gallon of fuel for every hour spent idling, so turn your engine off for long stops. How long is long? As a rule, shutting off your engine for any stop anticipated to be longer than 30-60 seconds saves gas and reduces carbon dioxide emissions. But make safety your highest priority, and only shut off your engine in situations where you are not in traffic, such as waiting to pick up the kids or when you're making a quick drop off or pick up.

Buy an Automated Pass for Toll Roads

Computers make our lives easier in many ways, including reducing fuel use. By purchasing an "E-Z" pass for a toll road or bridge, a driver avoids stopping and starting the vehicle and idling in lines. Special lanes allow drivers to maintain a cruising speed through the toll. This saves time and money at the pump.

Use the Highest Gear Possible

Automobiles are designed to start in the lowest gear possible, because that's where they have the most power, however, power means fuel consumption, according to Edmunds.com. By using overdrive gearing where possible, such as on the highway, your vehicle's engine speed goes down, saving fuel and engine wear while reducing CO2 emissions.

Drive Your Vehicle to Warm It Up

Today's automobile does not need a warm-up period before driving it. Even on the coldest morning, running your engine for 30 seconds is all you need before your vehicle is ready to drive, according to J.D. Power. This is enough time for the oil to circulate throughout the engine. Your vehicle will reach its optimum operating temperature much faster when you are driving, rather than idling. Today's engines are designed to run most efficiently when warmed up, so you want to warm up the vehicle by driving it. During the first few minutes of driving when an engine is cold, try to avoid sudden or severe acceleration. Also, you don't need to step on the gas pedal before starting the engine. Take advantage of a warm engine by "trip chaining", or grouping your trips together. For more information, visit www.DriveLessSaveMore.com.

Keep Your Cool

The inside of a vehicle heats up quickly in summer sun, reaching 120 - 130 degrees Fahrenheit in just 10 minutes. That can mean more air conditioning use, and that means more fuel use. Now, keeping your cool reduces carbon dioxide emissions too. So, always roll down the windows when getting into a hot car to blow out the hot air. Try to park in the shade. And consider investing in a heat reflector or window shades to shield your vehicle's interior from the sun. Parking in your garage instead of outdoors can help keep your vehicle cooler in the summer.

Obey your Check Engine Light

Today's automobiles have sophisticated onboard diagnostics (OBD) systems that continually monitor the operation of your vehicle. When the OBD alert light comes on, there is the possibility that your emissions are increased and your fuel economy is going down. An example would be if the oxygen sensor has failed and the engine controller goes to a default setting - increasing fuel consumption. Replacing a faulty oxygen sensor could result in a fuel economy improvement of as much as 40%. When the OBD light goes on, see your auto dealer for more information.

Pay As You Drive impact equivalent to taking 10 million cars off the road in California

2008-08-29T07:23:00.001+10:00

A press release by the Californian Department of Insurance states that if 30% of Californian drivers participate in Pay As You Drive insurance, California could avoid:

55 million tons of CO2 between 2009 and 2020.
That is the equivalent of taking 10 million cars off the road!
It would save 208 billion liters of petrol.
It would save Californians US$40 billion in car-related expenses.

Given that Pay As You Drive theoretically charges people who drive less than average, less for insurance, it would appeal to 50% of the market. The 30% participation figure is therefore quite plausible.

The numbers are quite staggering.

Full press release below. Source: http://www.insurance.ca.gov/0400-news/0100-press-releases/0070-2008/release089-08.cfm

SACRAMENTO - Insurance Commissioner Steve Poizner today announced that he is making a new, green auto insurance option available for California consumers. Pay-as-you-drive auto insurance is a way for motorists to more accurately pay for the coverage they need, by linking their premium more closely with the number of miles they drive. Any incentive like this to get people to drive fewer miles will help reduce greenhouse gases and vehicle accidents.

"I am thrilled to pave the way for California drivers to obtain insurance that is more environmentally friendly and more accurately reflects driving habits," said Commissioner Poizner. "As a strong advocate of healthy market competition and a healthy environment, I am especially pleased to encourage this kind of innovation and additional options for consumers."

The Environmental Defense Fund estimates that if 30% of Californians participate in this voluntary coverage, California could avoid 55 million tons of CO2 between 2009 and 2020, which is the equivalent of taking 10 million cars off the road. This would save 5.5 billion gallons of gasoline and save Californians $40 billion dollars in car-related expenses. Additionally, the California Air Resources Board has recommended the adoption of pay as you drive as one of the means to meet future climate change gas reduction targets.

Current auto insurance regulations require that rates are based on estimated annual mileage. The new regulations will provide an additional option for actual mileage, or pay-as-you-drive coverage. Commissioner Poizner's newly-proposed regulations will let insurers offer a voluntary option for consumers who are interested in pay-as-you-drive coverage.

Under the new regulations, consumers could verify mileage by odometer readings, automotive repair records, or a technological device used to collect mileage data. Commissioner Poizner's regulations explicitly prohibit insurance companies from requiring policyholders to participate in a pay-as-you-drive program. A copy of the regulations is available below.

As a former Silicon Valley entrepreneur who founded SnapTrak, a company that pioneered technology to put GPS receivers into cell phones, Poizner understands firsthand that GPS can be a life-saving tool when used appropriately. However, Poizner has also said this type of technology does not have a place in pay-as-you-drive auto insurance for privacy and public policy reasons.

"California has always been at the forefront of technological innovation. A major priority for the Department of Insurance is harnessing this technology to benefit consumers," continued Commissioner Poizner. "At the same time, it is vital that the privacy of drivers remains intact. I will not approve any auto insurance policy that aims to utilize GPS devices in order to obtain location data from consumers."

California law has procedures in place to allow for public involvement in adopting new regulations. After these procedures are completed, the regulations will take effect - not later than fall 2009. Insurers will then be able to apply to offer this product in California.

Commissioner Poizner has and will continue to pursue policies that benefit the environment. Currently, Poizner is sponsoring SB 1279 (Sen. Maldonado), which will allow insurance companies to submit paperless filings to the Department of Insurance, significantly reducing the amount of trees cut down by the numerous paper filings the Department receives annually. Last month, Poizner approved the first green homeowners insurance policy in California.

Click here for proposed regulation.

US car crash fatalities drop by 20% following a 2.7% drop in driving

2008-08-29T04:18:00.001+10:00

The abstract below is from a research paper with a fascinating result. The US experienced a 20% drop in fatalities caused by car crashes, following a 2.7% drop in mileage driven. The hypothesis of the author (Michael Slivak, University of Michigan) is that the drop in mileage driven is due to fuel prices, but that it is disproportionately skewed to low income drivers, who are also high risk drivers. Combined with that is safer driving as a result of more economic driving. The benefits of a 20% drop in fatalities are huge, both in cost and economics.

Another paper by the Brookings Institute (see posting of 31 July 2008) estimates that Pay As You Drive has the potential to reduce driving by 8%. Clearly the result of Michael Slivak's paper cannot be extrapolated linearly, but it would indicate a drop in fatalities of much greater than 8%.

Abstract of Michael Slivak's paper: Trends in U.S. motor vehicle fatalities, gasoline sales, and distance driven were examined for 12 months from May 2007 through April 2008. The results show substantial year-toyear reductions in motor vehicle fatalities during this time period that cannot be fully explained by the reductions in gasoline sales and distance driven. This is especially the case for the latest two months examined (March and April 2008). Here, the reductions in motor vehicle fatalities averaged 20%, while the reductions in gasoline sales and distance driven were in low single-digits. Consequently, it appears that a major shift in driver behavior might be occurring. This shift may involve disproportionate reductions in distance driven for more risky driving conditions and for drivers with less income (who tend to have higher crash rates), as well as possible reductions in speeds as a means of increasing fuel economy. Should the March and April 2008 trends continue, the 2008 annual fatalities would drop to under 40,000 for the first time since 1961.

Full paper.

California State Insurance Commissioner backs Pay As You Drive

2008-08-28T05:51:00.001+10:00

Excerpt: "I am thrilled to pave the way for California drivers to obtain insurance that is more environmentally friendly and more accurately reflects driving habits," Poizner said at a Sacramento news conference. "As a strong advocate of healthy market competition and a healthy environment, I am especially pleased to encourage this kind of innovation and additional options for consumers."

Source: Los Angeles Times http://www.latimes.com/business/la-fi-insure28-2008aug28,1,5163500.story

SACRAMENTO -- "Pay-as-you-drive" auto insurance -- with premiums tied to the exact number of miles driven each year -- may be just around the corner for California motorists, state Insurance Commissioner Steve Poizner said today.

The commissioner released proposed state regulations that would give motorists the option of using the new rates as soon as next year, and several major insurers said they are interested in offering such plans.

Such policies, available on a limited basis in more than 30 other states, have two purposes: They would give insurance companies a more accurate way to set premiums, and they would offer motorists a financial incentive to drive less.

Currently, rates are based partially on drivers' often erroneous estimates of how much they drive as well as their safety records and number of years behind the wheel.

Under Poizner's proposed regulations, drivers could report their annual mileage in three ways: They could have their vehicle odometer checked by an insurance company representative; they could submit vehicle maintenance records; or they could have an electronic device installed in their cars that would transmit information to insurers.

The proposal is supported by the insurance industry, environmentalists and consumer groups. Environmentalists consider pay-as-you-drive policies an important tool for helping California curb emissions of the greenhouse gases that contribute to global warming.

"I am thrilled to pave the way for California drivers to obtain insurance that is more environmentally friendly and more accurately reflects driving habits," Poizner said at a Sacramento news conference. "As a strong advocate of healthy market competition and a healthy environment, I am especially pleased to encourage this kind of innovation and additional options for consumers."

The Environmental Defense Fund, which backs Poizner's proposed regulations as well as a similar effort in the Legislature, estimates that California drivers would save $40 billion in car-related expenses between 2009 and 2020 if about one-third of them switch to pay-as-you-drive policies.

Environmental Degradation – PAYD contributes to less car pollution

2008-08-28T05:42:00.001+10:00

Excerpt: " You might have a question in mind like, "Why am I paying high premiums if I'm not using my car often"? With the pay as you drive insurance premiums, you would be able to quite literally pay as you go."

Source: http://www.insurancearticle.org/pay-as-you-drive-1031/

Nature is one of God's creations. It is one of His best works of arts. But nowadays, the degradation of the environment seems to be unabated. One of the things, which contribute to the gradual destruction of the environment, is air pollution. Studies show that one of the great contributors to this is the smoke coming from the vehicles. Because of this fact, new concept in car insurance is formed - the pay as you drive auto insurance.

The idea behind pay as you drive auto insurance is simple - if you do not drive much, you will pay high insurance premiums. Advocated for this type of insurance policy thinks that there are many merits to this type of program such as the gas consumption, lower costs to the consumer and less air pollution.

You might have a question in mind like, "Why am I paying high premiums if I'm not using my car often"? With the pay as you drive insurance premiums, you would be able to quite literally pay as you go.

Essentially the insurance company will set an average driving amount for each car type. It could be broken down into a cents par mile basis. You would purchase a set of number of miles if you wanted to use the pay as you drive auto insurance system. You would be covered for insurance during this period. For those individuals who do not use their car most often or try to find cost saving methods or environment saving alternative, this pay as you drive system is an excellent idea. Though this type of program is not yet available, there are supporters in many states who are hoping to have this soon.

Environmental Defense, the conservation Law Foundation and even the US environment Protection Agency are some of the groups that are working to organize a national cooperative that would work with insurance companies to offer deep discounts for low-mileage drivers. This is halfway a step towards PAYD (pay as you drive) insurance.

General Motors and On-Star offers PAYD rates. GMAC or General Motor Acceptance Corporation Insurance began offering mileage-based discounts to Onstar subscribers located in some states, in the middle of 2004. To verify mileage, the Onstar system reports a vehicle's odometer readings at the beginning and end of the policy term. Motorists who drive less than the specified annual mileage car receive insurance premium discounts of up to 40%. PAYD program are now available in Israel, South Africa and Holland.

Like in the cell phone plan that you can pay as you talk. The pay as you drive auto insurance is also a good idea. From this little thing, you can also contribute to the renewal of the beauty of nature.

Digg PAYD: Pay As You Drive Comprehensive Car Insurance Online Quotes

2008-08-19T17:56:00.001+10:00

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

read more | digg story

Privacy Concerns with Telematic PAYD solved by Real’s PAYD

2008-08-18T21:01:00.001+10:00

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.

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

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

2008-08-17T07:30:00.001+10:00

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

2008-08-12T17:53:00.001+10:00

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

2008-08-11T21:53:00.001+10:00

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

2008-08-04T22:54:00.000+10:00

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

2008-08-01T22:45:00.000+10:00

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

Pay-As-You-Drive Car Insurance: A Simple Way to Reduce Driving-Related Harms and Increase Equity

2008-07-31T22:11:00.000+10:00

July 2008 —

ABSTRACT

The current lump-sum pricing of auto insurance is inefficient and inequitable. Drivers who are similar in other respects—age, gender, location, driving safety record—pay nearly the same premiums if they drive five thousand or fifty thousand miles a year. Just as an all-you-can-eat restaurant encourages more eating, all-can-drive insurance pricing encourages more driving. That means more accidents, congestion, carbon emissions, local pollution, and dependence on oil. This pricing system is inequitable because low- mileage drivers subsidize insurance costs for high-mileage drivers, and low-income people drive fewer miles on average.

In this discussion paper, we propose and evaluate a simple alternative: pay-as-you-drive (PAYD) auto insurance. If all motorists paid for accident insurance per mile rather than in a lump sum, they would have an extra incentive to drive less. We estimate driving would decline by 8 percent nationwide, netting society the equivalent of about $50 billion to $60 billion a year by reducing driving-related harms. This driving reduction would reduce carbon dioxide emissions by 2 percent and oil consumption by about 4 percent. To put it in perspective, it would take a $1-per-gallon increase in the gasoline tax to achieve the same reduction in driving. Unlike an increase in the gas tax, PAYD would save most drivers money regardless of where they live. We estimate almost two-thirds of households would pay less for auto insurance, with each of those households saving an average of $270 per car.

Despite the large social benefits from PAYD, there are currently several barriers to its widespread adoption, including the cost to monitor miles traveled and some state insurance regulations. In order to facilitate the spread of PAYD, we propose a three-part strategy. First, states should pass legislation permitting mileage-based insurance premiums. Second, the federal government should increase the funding available to PAYD pilot programs by $15 million over five years. Finally, since the monitoring costs may exceed the expected benefit of PAYD to insurance firms but are much smaller than the social benefit, the federal government should offer a $100 tax credit for each new mileage-based policy that an insurance company writes, to be phased out once 5 million vehicles nationwide are covered by PAYD policies. In short, PAYD represents a win-win policy. What is good for drivers, in this case, is also good for society.

Source: Brookings Institute

View full paper »

State Considers Pay-As-You-Drive Auto Insurance

2008-07-18T11:58:00.000+10:00

Here is an article in Yesterday's LA Times. There are also 50 public comments, representing the general range of concerns and misunderstandings. - Todd Litman

A plan that charges motorists based on miles driven could cut fuel use, pollution and traffic as well as lower premiums, say backers. Opponents worry about privacy issues.
By Marc Lifsher, Los Angeles Times
http://www.latimes.com/classified/automotive/highway1/la-fi-carinsure15-2008jul15,0,2725003.story

SACRAMENTO -- An alliance of insurance companies and environmentalists wants to bring a new kind of mileage-based auto insurance to California and charge motorists only for the number of miles actually driven.

Called pay as you drive, the option is available from a few insurers in 34 states -- but not California -- as well as Canada, Japan and Europe.

One company, GMAC Insurance Group, says its customers -- whose mileage is tracked by General Motors Corp.'s OnStar system -- have reduced the premiums they pay by 13% to 54%. And California drivers could expect to get similar savings if pay as you drive is approved here.

The system could cut motoring costs, protect the environment and reduce traffic congestion, boosters say. Opponents, mainly privacy advocates, say they fear that insurance companies could begin tracking more than just a driver's mileage. High-mileage drivers could also see higher rates.

People who agree to tie their insurance premiums directly to miles driven are likely to make the maximum effort to stay out of their cars. That way, proponents say, they'll save money on gasoline and insurance, the top two costs of owning a car.

"I'm getting good savings," said Mark Holcomb, a retired federal worker, who recently moved from San Diego to a suburb of Orlando, Fla. "I'm not driving so much, so my likelihood of an accident is lower."

Holcomb said he cut his insurance bill by $634 a year for his Cadillac Escalade and his Saab convertible by switching to a GMAC pay-as-you-drive policy.

The concept, if applied nationwide, would do a lot more than cut insurance bills, says a study by the Brookings Institution, a Washington think tank. Pay as you drive could create $52 billion in annual benefits from fewer accidents, reduced traffic and pollution, and less reliance on foreign oil, the study concludes.

"This is a tool to reward drivers who actually drive less," said Assemblyman Jared Huffman (D-San Rafael), the author of a bill in the Legislature, AB 2800, to authorize pay as you drive in California.

Huffman's measure is sailing through the Legislature with little opposition. State Insurance Commissioner Steve Poizner is working on regulations that would put a similar proposal on the books.

Pay-as-you-drive skeptics say they're all for reducing auto use but are wary about how insurers might keep tabs on their customers. Others worry that the deep discounts offered urban drivers, who don't use their cars much, could be offset by making rural motorists pay more.

"The grocery store could be nine miles away," said Assemblyman Joel Anderson (R-San Diego), who voted against the Huffman bill. "I don't want to punish people" who live in the country.

GMAC and a second insurer, Progressive Corp., report widespread customer acceptance of their pay-as-you-drive policies in other states. Progressive says that about one-third of its new customers are volunteering for pay-as-you-drive pilot programs underway in Minnesota, Michigan and Oregon. GMAC says it has signed up 30,000 policyholders nationwide for a low-mileage discount program.

Proponents, including trade groups representing most major insurance companies, say that now is the perfect time for pay as you drive. With gasoline prices near $5 a gallon and likely to head higher, motorists are changing their driving patterns.

Last month the U.S. Department of Transportation reported that Americans drove 1.4 billion fewer miles in April than they did a year earlier.

But privacy advocates worry that companies might install sophisticated GPS devices on cars that would communicate via satellite where and when motorists travel and whether they are speeding or driving recklessly.

"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," said Paul Stephens of the Privacy Rights Clearinghouse in San Diego.

Insurance experts suggest that privacy concerns may have been the undoing of a pay-as-you-drive product launched two years ago by Britain's largest auto insurance company, Norwich Union. In June the company canceled its program after only 10,000 customers signed up.

Huffman said he didn't want to make the same mistake. He said his bill would allow the tracking of mileage but didn't endorse GPS surveillance. His bill would leave details about how to record mileage to the California Department of Insurance.

Poizner said he intended to explore techniques that are less invasive than GPS. Those include using electronic monitors that check only odometer readings, accessing maintenance records and authorizing smog inspection stations to report mileage readings.

Under California law, the number of miles driven in a year is the second-most-important factor that insurers must use to compute a customer's premium. But companies complain that policyholders' estimates of how much they drive often are way off the mark. According to a 2006 Department of Insurance study, 56% of policyholders underreported annual driving.

"Allowing drivers to submit 'estimates' of inaccurate mileage breaks the connection between conduct and consequences," said a letter to the Assembly Insurance Committee from the Personal Insurance Federation of California, a trade group.

Said Yves Didier, who commutes from the San Fernando Valley to work as a police officer at Los Angeles International Airport, "Giving motorists a chance to save money by driving less is a good idea, as long as it's strictly voluntary.

"I personally would not want a device in my vehicle. I feel like it's another step toward Big Brother watching me," he added. "But if it's voluntary, I don't see any harm. It would create a benefit for the environment and obviously to certain customers."

marc.lifsher@latimes.com

Pay-As-You-Drive Insurance: Recommendations for Implementation

2008-07-17T22:18:00.000+10:00

Abstract

This paper provides guidance for implementing Pay-As-You-Drive (PAYD) vehicle insurance, which directly incorporates mileage as a rate factor. It describes PAYD pricing options, discusses PAYD benefits and costs, describes regulatory reforms, evaluates various objections to PAYD, and provides specific recommendations for PAYD implementation. Various data sources indicate that crash costs increase with annual vehicle mileage. As a result, PAYD increases actuarial accuracy (premiums better reflect a vehicle's claim costs). PAYD pricing rewards motorists when they reduce their mileage, providing financial savings and additional benefits including increased safety, congestion reduction, road and parking facility cost savings, energy conservation, emission reductions, and increased insurance affordability.

Although there are several possible ways to implement PAYD insurance, some provide more benefits than others. Insurance regulators can maximize benefits by defining performance standards that policies must meet to be considered PAYD, as described in this paper. Critics raise various objections to PAYD pricing, but many of these are technically inaccurate or can be addressed with appropriate implementation practices.

Source: Todd Litman

Victoria Transport Policy Institute

16 June 2008

Freakonomics

2008-04-20T22:31:00.000+10:00

Not-So-Free Ride

By STEPHEN J. DUBNER and STEVEN D. LEVITT

Published: April 20, 2008, in the Green Issue of the New York Times Magazine

The trouble with negative externalities

Americans drive too much. This isn't a political or moral argument; it's an economic one. How so?

Because there are all sorts of costs associated with driving that the actual driver doesn't pay. Such a condition is known to economists as a negative externality: the behavior of Person A (we'll call him Arthur) damages the welfare of Person Z (Zelda), but Zelda has no control over Arthur's actions. If Arthur feels like driving an extra 50 miles today, he doesn't need to ask Zelda; he just hops in the car and goes. And because Arthur doesn't pay the true costs of his driving, he drives too much.

What are the negative externalities of driving? To name just three: congestion, carbon emissions and traffic accidents. Every time Arthur gets in a car, it becomes more likely that Zelda — and millions of others — will suffer in each of those areas.

Which of these externalities is the most costly to U.S. society? According to current estimates, carbon emissions from driving impose a societal cost of about $20 billion a year. That sounds like an awful lot until you consider congestion: a Texas Transportation Institute study found that wasted fuel and lost productivity due to congestion cost us $78 billion a year. The damage to people and property from auto accidents, meanwhile, is by far the worst. In a 2006 paper, the economists Aaron Edlin and Pinar Karaca-Mandic argued that accidents impose a true unpaid cost of about $220 billion a year. (And that's even though the accident rate has fallen significantly over the past 10 years, from 2.72 accidents per million miles driven to 1.98 per million; overall miles driven, however, keep rising.) So, with roughly three trillion miles driven each year producing more than $300 billion in externality costs, drivers should probably be taxed at least an extra 10 cents per mile if we want them to pay the full societal cost of their driving.

How can this be achieved? Higher tolls, especially variable tolls like congestion pricing, are one option. This seems to have worked well in London but was recently quashed in New York City, where the political hurdles proved too high.

A higher gas tax might also work. If a typical car gets 20 miles to the gallon, then the proper tax would be about $2 per gallon. But with the current high market price for gas and the political hysterics attached to it — well, good luck with that one.

This brings us to automobile insurance. While economists may argue that gas is poorly priced, that imbalance can't compare with how poorly insurance is priced. Imagine that Arthur and Zelda live in the same city and occupy the same insurance risk pool but that Arthur drives 30,000 miles a year while Zelda drives just 3,000. Under the current system, Zelda probably pays the same amount for insurance as Arthur.

While some insurance companies do offer a small discount for driving less — usually based on self-reporting, which has an obvious shortcoming — U.S. auto insurance is generally an all-you-can-eat affair. Which means that the 27,000 more miles than Zelda that Arthur drives don't cost him a penny, even as each mile produces externalities for everyone. It also means that low-mileage drivers like Zelda subsidize high-mileage drivers like Arthur.

Aaron Edlin first noticed this imbalance more than 15 years ago. "I was a graduate student at Stanford," he says, "and I drove maybe 2,000 miles a year. But I paid roughly the same $1,000 as if I'd driven 10 times as much, which was a huge portion of my budget." A few years later, Edlin was serving on the President's Council of Economic Advisers when he floated an idea that economists had long found attractive: pay-as-you-drive (PAYD) insurance. It seemed like an obvious solution. Since no one expects to pay the same price for, say, a 60-minute massage as they pay for a 15-minute massage, why should people pay the same for insurance no matter how many miles they drove?

"The objection within the White House," Edlin recalls, "was there wasn't good academic research on the subject."

Edlin and a few others, including Jason Bordoff and Pascal Noel at the Brookings Institution, have since done such research. It makes a compelling case that PAYD insurance would work well, reducing the carbon emissions, congestion and accident risk created by too much driving while leading drivers to pay the true cost of their mileage. Bordoff and Noel put the total social benefit at $52 billion a year.

The better news is that PAYD insurance is no longer just an academic exercise. G.M.A.C. has begun using OnStar technology to offer mileage discounts, and next month Progressive will roll out a comprehensive PAYD plan called MyRate. Progressive, the huge Ohio-based insurer that has long prided itself as an innovator, will first offer the plan in six states, having run a similar pilot in three other states. Drivers who sign up for MyRate will install a small wireless device in their cars that transmits to Progressive not just how many miles they drive but also when those miles are driven and, to some extent, how they are driven: the device measures the car's speed every second, from which Progressive can derive acceleration and braking behavior. Which means that Progressive will not only be able to charge drivers for the actual miles they consume but will also better assess the true risk of each driver.
If PAYD is such a great idea, why has it taken so long? There are at least three reasons: the tracking technology has only recently become affordable; insurers were anxious about drivers' privacy concerns; and there was a substantial risk for whichever company was first to offer PAYD on a large scale.

Participation in the MyRate program is voluntary, and that's where the economics get interesting. As with most incentive changes, there will be winners and losers. The clearest winners are people like Zelda, who can drive the same distance they used to drive and pay less. What's less obvious is whether Progressive will be a winner; there are, in fact, a couple of situations in which Progressive could lose out. If all MyRate accomplishes is to give Progressive's low-mileage customers the rate cut they deserve, then Progressive is doing little more than lowering its own revenues. It could, of course, try to compensate by raising rates on all its high-mileage Arthurs, but then there's nothing to stop Arthur from buying his insurance elsewhere. (Of course, losing its riskiest customers to other companies might also prove profitable for Progressive.)

If, however, Progressive can corner the Zelda market by stealing millions of Zeldas from other insurers, then it could make a killing by being the first to sell accurately priced insurance for low-mileage drivers. The bigger goal for society — and the wild card in this or any incentive shift — is to create real behavior change. And that is always easier said than done. But if Progressive's PAYD insurance can induce some of its high-mileage customers to drive less and especially to drive more safely, resulting in smaller claims payouts for Progressive and fewer negative externalities for everyone, then it could truly be a win-win-win situation.

Except, perhaps, for Progressive's rivals.

Salvador Minguijón Pérez on PAYD

2007-09-01T07:51:00.000+10:00

Dear Ladies and Gentlemen,

David McClure Director of telematics in Research and Markets exposed in its last report on the branch tendencies:

"We have witnessed a dramatic change in the telematics industry in recent years, with the initial dominance of vehicle manufacturers being replaced by the business needs and policy objectives of the insurance industry and European governments.
"But in order for them to realise their goals, we need to see a step-change from the current situation, where each telematics service requires different in-car hardware, to a point where all applications can be supported on a single platform. This will require major investment and at present, none of the principle stakeholders appears willing to make the commitment alone, each preferring to 'piggyback' their services off a system installed at someone else's expense.
"Our report clearly illustrates the benefits that can be achieved once the present impasse is resolved."

Refering to the project "Pay as you drive" I fully coincide with the diagnosis of David Mcclure, it is a reality that I usually have to face with in the negotiations for the exploitation of the patent EP 0700009.

Currently, IP Auctions GmbH (Germany) is entrusted with the conduct of negotiations with interested parties in Europe. The final bidding phase will be brought to termination on October 31st. More information at www . ip-auction .eu

A fact that can break this situation is the acquisition of Tele Atlas by TomTom. We had recently commented that TomTom had acquired the centre of development of Siemens-VDO in Einhoven, and with it, the whole telematic technology of Siemens-VDO.

But, besides the development plans of TomTom in this field, we will also have to pay atention to the reaction of their competitors Navman, Mio, Garmin, etc that will tend to articulate around Navteq. That, on the other hand, will see in danger its up to now comfortable leadership in the business applications market.

For most of the insurance companies, it would be great if a company like TomTom or Navteq took the leadership in the offer of a platform that supports an application "Pay as you drive" together with other telematics solutions.

Nevertheless, there are some companies and people that, for one or another reason, are carrying out big efforts to overcome this impasse, for example:

At first place we have Norwich Union whose objective is to become the leader in the automobile insurance in England, and that supports its project with a set of additional services offered by RAC and Trafficmaster.

Octotelematics, that has worked with its own system of localization of vehicles to get a great penetration in the insurance companies. It has a platform that is gradually turning to be as a "Pay as you drive" system. It is nowadays a business model for Spanish, French or American companies, an other countries where the problem of robbery is much more important.

It is necessary to name Todd Alexander Litman in Canada and Ian Parry and Allen Greenberg in U.S.A who are taking several years trying that their respective governments force the insurance companies to offer policies linked to the use. This is a topic that we will discuss later on, because it deserves a specific article.

We should also mention to the family Cobopoulos, which is determinated in developing a telematic project in the city of Athens that would be a world reference and that would incorporate, among other multiple services, the "Pay as you drive" Insurance.

We should not forget that Fotis Karamitsos, the godfather of the telematics in Europa, is Greek and that he has a great influence in his country. It is hoped that Greece reaches a great economic dynamism in next years. The traffic supposes a tremendous problem in this country already. So everything indicates that indeed Greece can play an important part in the development of the European telematics systems.

In my previous bulletin of June, I made the error of linking the activities of Detecon and T-Systems, when in fact Detecon is a completely independent consultancy. They advise their clients with the best possible solutions for their business and are not bounded in any way to solutions offered by its shareholder T-Systems. Certainly, and without any doubt, a partner that any European insurance company that wants to throw a project "Pay as you drive", should speak with.

As always, I have upgraded my " Pay As You Drive Directory" and my News Bulletin.

If somebody wants that their address is erased of my distribution list, please return me this message with the word "DELETE."

Yours sincerelly.

Salvador Minguijón Pérez.
Interim Management.
+ 34 649 49 17 70
+ 34 976 59 58 71
Email: s.minguijon@salvador-minguijon.es
Web: http://www.salvador-minguijon.es

News from Todd Litman

2007-08-24T07:50:00.000+10:00

Here are news items concerning Pay-As-You-Drive pricing:

Ian Ayres and Barry Nalebuff (2007), "Would You Buy Car Insurance By The Mile?, Forbes.com ( http://moneycentral.msn.com/content/Insurance/P45802.asp). This article by two Harvard economists highlights the economic justification for PAYD.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The National Motorists Association's "NMA's Position on Auto Insurance" ( http://www.motorists.org/insurance ) indicates that many motorists support PAYD insurance pricing.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Salvador Minguijon's "Pay_as_you_drive Blog" ( http://payasyoudrive.wordpress.com ) provides updates on various issues related to PAYD insurance.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Below is a letter I sent to CEO of the Insurance Corporation of British Columbia (ICBC), our provincial insurance agency. British Columbia has a special opportunity to implement PAYD vehicle insurance and registration fees because ICBC insures and registers all vehicles in the province. PAYD would help achieve many of ICBC's stated goals, including increasing insurance affordability and equity, reducing traffic deaths and accident costs, and responding to consumers. In recent years a number of organizations have asked ICBC to offer PAYD pricing, or at least to implement a pilot project to test the concept.

The British Columbia government recently established one of North America's most aggressive climate change emission reduction targets (emissions 10% below 1990 levels by 2020) and appointed a special Climate Change Secretariat to identify potential emission reduction strategies. Each government agency is required to recommend emission reduction strategies. This is an opportunity for ICBC to show international leadership with insurance pricing innovation. However, despite several requests, ICBC has not indicated its position on PAYD pricing or whether this will be included in its submission to the Secretariat.

~~~~~~~~~~~~~~~~~
Paul Taylor
President and Chief Executive Officer
Insurance Corporation of British Columbia
151 West Esplanade
North Vancouver, BC V7M 3H9
15 August 2007

Dear Mr. Taylor,
I am writing once again to ask for ICBC's policy on Pay-As-You-Drive (PAYD) pricing, and specifically whether this strategy will be included in ICBC's submission to the BC Climate Change Secretariat. I made this request twice before during the last month and have so far received no reply.

Research by myself and others indicates that PAYD pricing could provide significant benefits to motorists and other road users; it can help achieve ICBC's stated goals to increase insurance affordability and road safety; and it can be implemented with minimal risk by starting with a pilot project.

I believe that, as people learn more about Pay-As-You-Drive they will agree that it should be considered as a climate change emission reduction strategy, and that ICBC should quickly implement a pilot project to test the concept. I therefore ask you:

To provide ICBC's official policy on PAYD pricing.
To share the results of ICBC's research on PAYD pricing.
To include PAYD in ICBC's submission to the BC Climate Change Secretariat.
To quickly implement an odometer-based PAYD pilot project to test the concept.
To explain any objections ICBC has to this concept.

Our Institute will soon begin a multi-media campaign to educate people about PAYD pricing and build support for its implementation in BC. It would be best for everybody if this is a cooperative effort between our organizations. I would like to meet with you to discuss this.

Sincerely,
Todd Alexander Litman
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Attached is a backgrounder which provides additional information about PAYD in British Columbia. Please let me know if you have comments or questions about this.

Sincerely,
Todd Alexander Litman
Victoria Transport Policy Institute (www.vtpi.org)
litman@vtpi.org
Phone & Fax 250-360-1560
1250 Rudlin Street, Victoria, BC, V8V 3R7, CANADA
"Efficiency - Equity - Clarity"

Salvador Minguijon Perez on PAYD

2007-04-04T07:43:00.000+10:00

Dear Ladies and Gentlemen:

There has been a lot of activity in Germany with regard to the project "Pay as you drive" during this month.

I try to look for the English versions of the documents that I use in my references, but this is not always possible. Although I suppose that it is better to have located this documentation in German than to ignore it.

The most important news is that there is an agreement between IBM and Allianz to develop the project at European level .

We all know that IBM has been working for years in this project and that its collaboration first with Norwich and later on with Cert, has allowed him to dedicate a very superior quantity of resources than the rest of its competitors. However, the sudden interest of Allianz in this project has surprised me.

Also with European objectives we have the projects of Siemens
with Zürich Versicherung and T-System
with WGV . All with the enough capacity to develop this project.

A special case is Swiss-Re that, together with Norwich Union, are the insurance companies with more motivation in this project and this compensates in great way its difficulty to manage technical projects.

I imagine that Axa-Winterthur, eternal competitor of Allianz, will redefine his strategy with regard to this project immediately, in fact their North American branch Unigard has thrown an investigation project with a budget of 6 million dollars, a third of which are federal founds.

I suppose that these companies will establish one or two projects at European level, which will be the ones that definitely will be implanted. The rest of the companies, with local project, such as Sara , Unipol, Uniqa and Huk-Corbug will finish adding to these projects.

In great way, what will happen depends on the result of the auction of the patent EP0700009 that is something like a ticket to be able to participate in this project. This ticket allows you to ascend to this train, called PAYD, but you have to make the effort of being in the station, at the correct time and in the correct train. In this train there are few seats, so if you don't have ticket, you will have to fight to go up to it, and have luck, because many travelers will stay in the station.

It doesn't seem that Norwich has any intention of informing us of how its project is developing. We can only sense it for the euphoric presentation of results of its supplier Trafficmaster, not bad if we remind that the project began commercially in September of 2006.

Regarding Progressive's Tripsense project in USA, has announced to wide their tests to the states of Michigan and Oregon, it is necessary to remember that he has already made some small tests in Minnesota, using very low cost equipment, with open software and that doesn't need installation. It is the most economic way to make some tests, although if the project gets in a commercial phase, a more specific equipment would be designed.

There are new informative publications of the project that have a great interest:

http://www.ptv.de/download/mobility/hintergruende/PayAsYouDrive.pdf

http://www.sbd.co.uk/assets/Future_Trends_NEWS_release.doc

http://en.wikipedia.org/wiki/PAYD

http://www.vtpi.org/dbvi.pdf

http://www.ivw.unisg.ch/org/ivw/web.nsf/SysWebRessources/FT4-Helvetia/$FILE/Helvetia.pdf

http://www.lexisnexis.de/aktuelles/112115?or=13&ur=0&tt=news

http://www.businessportal24.com/de/Kfz_Versicherer_Verdraengungswettbewerb_Massnahmenbuendel_Marktposition_158341.html

http://payasyoudrive.wordpress.com/2007/03/22/the-endless-crisis-in-the-automobile-insurance/

It is also interesting the publication of the University of Cambridge that list projects that are linked with this in great way, the interest raised in the sector of rent-a-car, in companies
of services
, technology
or countries like Korea or India
.

I have upgraded my database Pay as you drive directory .

If somebody wants that their address is erased of my distribution list, please return me this message with the word "DELETE."

Yours sincerelly.
Salvador Minguijon Perez.

Salvador Minguijon Perez on PAYD, including Michael Hawker from IAG

2007-03-20T08:41:00.000+11:00

Dear Ladies and Gentlemen:

The Victoria Transport Policy Institute has revised the document Pay-As-You-Drive Vehicle Insurance, which is without any doubt the most complete study that exists on this topic and, of course, I recommend reading it again.

Insurance Australia Group (IAG) chief executive Michael Hawker, exposes his vision about this project
that is not very different from what we had already exposed in the article Strategic Positioning of the Insurance Companies regarding the projects "Pay As You Drive".

If a month ago I underlined the errors of Wikipedia relating to the Patent EP0700009, this month I take back because the information that is in the epigraph Insurance Patent is concise and correct. When trying to look for the person that has published this information I found NOWA. I suppose that in fact it will be Marc Nowotarski, one of the few specialists in the application of patents in the sector of the insurance.

Such as I advanced last month, the rights of the European patent that are still of my property, that is to say in Italy, Spain, France and Germany, although in the last three countries there is granted an nonexclusive license, will be jointly auctioned next day May 15 in Munich by the company IP Auctions GmbH . It is still possible that some country is retired of the auction.

The auction of the patent has some very concrete motivations , but I am convinced that will favour the development of this project. Some great insurance company has manifested a certain relief, because they thought that the property of the patent would pass to a great technological company and that consequently it could not be used aggressively by their competitors. I am not so sure of this, the range of companies that are looking at this project is very wide and with very different interests .

Besides
the interests of the insurance own companies (in Europe) and of the users (in United States), there are two problems of great importance pushing this project, one of them is the congestion of the traffic and the other one the climatic change . For instance, it doesn't seem that nobody worries too much of the 30,000 annual deaths that originates the traffic in Europe.

Regarding the first one, I believe that Tony Blair's answer to the popular rejection to the project Road Charge represents the position of all the governments of the industrialized and democratic countries, in opinion of some, too fearful of losing votes.

But contrarily to what is usually thought, it is not that the public transportations absorb the decrease of the private traffic
, that would be practically impossible, but of conjugating this with a smaller use of the vehicle, something that will have many repercussions in the organization and forms of life of our cities.

If some wants to deepen more in the topic of the congestion of the traffic, I recommend you the following mail list http://lists.umn.edu/cgi-bin/wa?A0=con-pric .

           I have upgraded my database Pay as you drive directory .
            If somebody wants that their address is erased of my distribution list, please return me this message with the word "DELETE."

Yours sincerely.
Salvador Minguijon Perez.