Pay-As-You-Drive Insurance Goes Into High Gear
Lower Rates in Exchange for Your Actual Mileage — or More
For example, GMAC Insurance offers discounts to OnStar users who limit their mileage and agree to let the GMAC confirm it via the OnStar system's diagnostics reports. Progressive Insurance now markets its Snapshot plan in 27 states, offering the possibility of up to 30 percent savings. The company says more than 100,000 consumers have signed up for Snapshot to date.
After years of discussion about privacy and other policy issues, California has finalized pay-as-you-drive regulations and recently approved applications by the Automobile Club of Southern California and State Farm Mutual Automobile Insurance to offer the plans. Consumers can either self-report actual odometer readings at the beginning and end of policy periods or use a telematics device that plugs into the vehicle's onboard diagnostics port to do the job. Allstate recently debuted its Drive Wise program in Illinois, with plans for expansion to other states in 2011. At least one other insurer is conducting a pay-as-you-drive pilot program.
Pay-as-you-drive insurance appeals to consumers because it offers the possibility of lower rates. Insurance companies like it because telematics devices, which are required in most pay-as-you-drive plans, transmit accurate driving data and let insurers match the price of their coverage to the actual risk posed by drivers.
Telematics used by automotive systems like OnStar will wirelessly transmit vehicle information for such things as automatic roadside assistance or remote diagnostics, but the use of such technology has raised the hackles of some state regulators and privacy advocates. There's particular concern when the devices report more than just miles driven. The programs from Progressive and Allstate, for example, report mileage but also monitor driving behavior, such as when during the day or night a car is driven and the driver's acceleration and braking patterns. Additionally, Allstate's device takes note when a policyholder drives over 80 mph, and Allstate's Drive Wise site on the Web notes that such speeding can affect the policyholder's rating.
The number of miles driven by a policyholder tells part of the risk story, but so does driving behavior, says Richard Hutchinson, Progressive's manager of usage-based insurance. "If you drive a lot compared to average, you are a higher risk," he explains. "And if you drive aggressively, odds are you're a higher risk as well."
Hutchinson says Progressive measures aggressive driving through braking patterns."If you're aggressive, you are probably in closer proximity to other vehicles and trying to get around them, and so you have more braking events," he adds.
For consumers who are willing to be monitored, pay-as-you-drive plans permit individualized coverage for the first time, Hutchinson notes. This can be a real benefit for people who don't fit the profile of their risk group.
"The industry tries to identify people who are like you," he says. That can work, but it doesn't always. A teenage boy who's a cautious driver might still face high insurance rates because he's being lumped in with teenagers who speed and swerve. A careful teen driver could benefit from an insurance rate that's based on his actual driving patterns, Hutchinson tells us.
Progressive's marketing and privacy materials — as well as Hutchinson himself — take pains to say that the Snapshot device is only tracking "how safely, how often, how far and when" its customers drive, not where they drive. According to Progressive's Snapshot privacy statement, the device does not contain GPS technology and "does not track vehicle location or whether you're exceeding the speed limit." Hutchinson says, "We also don't know who is driving the car in which the device is installed."
In the case of the Auto Club of Southern California, the telematics device that members can use for mileage reporting can serve double duty. It does have GPS capability, so members can elect to use it for roadside assistance or to keep tabs on the driving behavior of a teenager in the family, says Auto Club spokesman Jeffrey Spring.
He stresses that the GPS feature won't be used for insurance purposes. The Auto Club is "very respectful of privacy, and when we say we're only collecting mileage for policyholders, that's all it's going to do," Spring says.
Such assurances don't satisfy privacy advocates, who see in insurance companies' use of telematics the potential for privacy breaches.
"As privacy advocates, we are concerned about the slippery slope," says Paul Stephens, director of policy and advocacy for the San Diego-based Privacy Rights Clearinghouse. "You're starting with benign information, but once you have the infrastructure in place, there's always the possibility of expanding it to other uses that are not quite as benign."
Pay-as-you drive plans that just use devices to report aggregated miles driven in a policy period are not as problematic as devices that are more "robust," Stephens says. "The level of concern is going to depend on precisely what data is being transmitted to the insurance companies."
GPS is the real sticking point, Stephens says. If a driver frequents bars or red-light districts, or travels to an abortion clinic, that information should stay private, he says. "Why should your insurance company need to know you were at an abortion clinic or if you go to a bar frequently?"
Such examples are exactly why Progressive doesn't use GPS, Hutchinson explains.
"The most sensitive issue is location tracking," he says. "We've been at this for quite some time, and we've concluded there are arguments on the benefits of location, but concluded we didn't need it for purposes of rating risk." Not using location information takes the most serious privacy arguments out of the conversation, he adds.
To some, the privacy argument is utterly overblown. Most people use mobile phones with GPS every day without a second thought, says John Canali, an analyst with Boston-based Strategic Analytics, Inc. which researches and advises on automotive electronics and related technology.
And if pay-as-you-drive plans establish a good track record of not misusing the driving behavior collected, users will likely be less worried, he says. He notes that drivers were leery of automatic tolling systems such as FastPass when they were first introduced.
"These concerns largely went away when consumers saw that the data was not being used against them to issue speeding tickets," Canali says.