Pay-As-You-Drive Insurance

Katherine Mangu-Ward | November 27, 2007

A British insurance company has debuted a system in which you pay as you drive for precisely the coverage you need. It monitors your speed, braking habits, etc. and sets premiums accordingly.

By tracking vehicle journeys [with an in-car "black box], taking into account factors such as route, time of day, braking, age of driver, and so on, Norwich Union [insurance company] promises to be able to reward the best drivers with lower insurance premiums. It maintains this doesn't equate to losing customers paying the highest premiums. These individuals tend to call on their insurance more often and lead to lower margins--far better to leave them to the competition.

The system uses an ultra-powerful database that deals with 1 billion rows of data a day. The existence of this database--and the technology to get data into it, in tiny 2 byte packets transmitted from the cars--puts the longstanding libertarian dream of pay-per-mile highway taxes/road maintenance fees in the realm of the possible. Plus it enables nearly perfect price signaling to drivers about the decisions they make on the road about how to drive, where to drive, and how often to drive. And lo and behold:

The U.K. government is eyeing plans for a pay-as-you-drive system to replace standard road tax discs.

Privatize the roads (or at least read about it) here and here.

Comments

|11.27.07 @ 4:38PM|#

Is that 1 British billion, or 1 American billion?

|11.27.07 @ 4:40PM|#

Standard Earth billion.

|11.27.07 @ 4:44PM|#

What about the privacy concerns? I'm not concerned with people voluntarily providing information to their insurance company, but I think policy-makers in the US are more likely to use this type of technology for traffic enforcement, especially if it's tied into some type of government sponsored toll system (which is much more likely than a private toll system).

|11.27.07 @ 4:45PM|#

Someone had a steaming hot cup of optimism today! When I hear about this, I think of new "responsible driving laws" or maybe an incremental, multi-part fine system to replace tickets. Fun for all.

Episiarch|11.27.07 @ 4:46PM|#

A billion rows of data a day is...a lot. A fucking lot. I would be very interested in knowing what they are using. However, a billion rows of 2-byte fields (if that is how they store it; it might be aggregated) is much smaller than the rows one would find in most other systems. Still, it's a lot.

As cool as this would be for road pricing and privatization, it's also very scary in terms of government tracking. That's some granular fucking data they'd have. Speeding? BUSTED. Accelerating "too fast"? BUSTED. Etc.

Reinmoose|11.27.07 @ 4:57PM|#

I'm not concerned about the insurance company using it, but like my fellow commenters, I too am concerned about what the government would be capable of using it for. That's not to say that I don't share your enthusiasm for private use-based fee roads, because I emphatically do. But in the wrong hands, this is just more opportunity for nannyism.

TLB|11.27.07 @ 5:01PM|#

I think policy-makers in the US are more likely to use this type of technology for traffic enforcement

I don't pay much attention to the UK, but what I've seen looks grim. I guess KMW hasn't been paying any attention, and can't make the tiny leap to things like TownCouncils mining this data to find out whether their residents have been going to "anti-social" events and the like.

|11.27.07 @ 5:02PM|#

Hey, I've been saying I'll be getting one of these when my kid starts driving. As far as kids are concerned (mine anyway), trust is something to be earned. Naturally, though, I wouldn't share any data with the insurance company or anyone else.

|11.27.07 @ 5:03PM|#

JW | November 27, 2007, 4:40pm | #

Standard Earth billion.

Ahem.

For 90% of the planet, what we North Americans call a billion [10^9] is a milliard. For most of the planet a billion = 10^12 = North American trillion.

|11.27.07 @ 5:28PM|#

See? I wasn't being facetious.

|11.27.07 @ 5:32PM|#

I for one welcome our new insurance overlords.

|11.27.07 @ 5:32PM|#

Actually, I can't wait till some IEEE standard is developed for automotive tracking devices. Then it will be a matter of minutes to hours before the standard is hacked for "optional" reporting.

|11.27.07 @ 5:38PM|#

Libertarian dream?

Won't I be required to let the government share in this data?

So, the libertarian dream is privatize roads to let the government have all of my privacy?

I don't know, big gov that builds overpriced roads seems like a small price to pay for my privacy.

Now, if libertarians also backed my right to privacy as much as they back the rights of business's I might just buy.

But since, as far as I can tell by this post and others like it, libertarians only support the rights of groups, never individuals.

I don't see how this small "seeming" victory over government can measure up against the great victory that big governments will achieve in their ability to keep tabs on me.

Anyone here willing to argue that the gov won't have access to this data? or maybe I should just say is there anyone here who hasn't been following the courts decisions saying all such info must be available to the gov?

|11.27.07 @ 5:46PM|#

Ahem.

For 90% of the planet, what we North Americans call a billion [10^9] is a milliard. For most of the planet a billion = 10^12 = North American trillion.

Yeah? Well, fuck them, I says.

Paul|11.27.07 @ 6:03PM|#

Is that 1 British billion, or 1 American billion?

Oh my god, I remember the first time I came across this distinction. I've been thoroughly confused since.

One Arm, One Rule|11.27.07 @ 6:04PM|#

The level of optimism required to believe that the insurance companies will use this to the benefit of the insured, is on par with that required to operate a slot machine.

R C Dean|11.27.07 @ 6:06PM|#

It maintains this doesn't equate to losing customers paying the highest premiums. These individuals tend to call on their insurance more often and lead to lower margins--far better to leave them to the competition.

As I understand this masterpiece of flackery, the company doesn't charge its high-risk customers higher premiums.

It simply cancels their coverage.

|11.27.07 @ 6:16PM|#

For 90% of the planet, what we North Americans call a billion [10^9] is a milliard. For most of the planet a billion = 10^12 = North American trillion.

Does this mean that North America disagrees with the rest of the world on quadrillion, quintillion etc.? If so, we need to set up a commision to study the problem and report on possible solutions.

|11.27.07 @ 6:19PM|#

@Lawrence: If reason magazine merely justified everything by saying something like "ew government" ad naseum, I know it would have at least one less reader. Can you guess who?

Maybe if you don't voluntarily do this, you can pay an administered "cap" put on the tax system encompassing it, and competitive insurance companies can simply charge you what they want based on the lack of info, e.g. higher premiums. Not participating may not be the smartest thing to do on an individual basis, but it sure is noble! ...what? I'm trying to be optimistic.

BakedPenguin|11.27.07 @ 6:30PM|#

...the company doesn't charge its high-risk customers higher premiums. ...It simply cancels their coverage.

From what I read, it sounds like they would non-renew instead. That is, instead of the company telling the insured that they are no longer covered and sending back the unearned premium already paid, they would wait until renewal notice time and send out a letter stating "sorry, we don't want you as a customer for the next policy period".

Insurance companies are, by "necessity" of being one of the most heavily regulated industries, deeply in bed with the state. I would second every skeptical statement regarding privacy rights made here.

|11.27.07 @ 6:47PM|#

That's not right. The old British billion is a "million million" e.g. 10^12, not 10^9. The British have been using the US billion since 1974, when it was adopted for use in official government statistics and by the UK press.

Big Nanny|11.27.07 @ 6:49PM|#

If your not driving anywhere you shouldn't be, why should you care if knows where you are?

|11.27.07 @ 6:50PM|#

Also, this kind of technology is guaranteed to be used by the whackjob anti-auto crowd to impoverish us by making "too many miles" of car travel (conveniently defined by them) very expensive, and force us into public transit (an expensive boondoggle if there ever was one).

|11.27.07 @ 6:59PM|#

I think that we would find that
a) the government would find a way to get its hands on the info;
b) the insurance companies would use it to discontinue coverage on those it deems "high risk";
c) for people who are low risk customers (and therefore they want to keep), the insurance companies would use the data as a pretext to charge extra fees. {"We see you exceeded the speed limit on Main St. on Thursday, May 25th. We are therefore assessing you a supplementary charge of $556 under Section 4, Article 216(K)(iii), Schedule D of your policy. This notice is for your records as the fee has already been charged to your bank account.")

BakedPenguin|11.27.07 @ 7:27PM|#

Aresen, insurance companies usually don't play bank style games with "fees" to screw people out of money. The pricing games played are in things such as "schedule rating" (it goes by other names). This is where an underwriter makes a judgment that certain aspects of a insured make it much less of potential risk than other, similar insureds.

Typically, personal lines have much less latitude in pricing than in commercial lines. (Even if they didn't, the smaller premiums in personal lines would mean that underwriter involvement would be limited anyway). However, they can file for certain endorsements that can change rates.

Recently, there has been a bit of hubbub about some insurance companies charging much less for people in certain job categories. I'm grandfathered into this with my current auto insurance provider, meaning every time I get a quote from a different company, it would cost a few hundred dollars extra every year.

|11.27.07 @ 7:34PM|#

Baked

I think, given the opportunity, the insurance companies would love to start playing the "extra fee" game.

As for banks, I am just starting the process of moving my accounts because my bank found another "fee" they could zing me with.

The Wine Commonsewer|11.27.07 @ 8:13PM|#

puts the longstanding libertarian dream of pay-per-mile highway taxes/road maintenance fees in the realm of the possible

They once called that gasoline tax. The more you drove, the more you paid Big heavy vehicles that sucked lots of fuel and tore up the roads at a quicker pace paid proportionally more fuel tax.

It was not a perfect system but it did roughly apportion use to fees. Of course, these days, like the connection between socialist security payments and socialist security taxes, much of the connection between fuel taxes and roads has been lost.

|11.27.07 @ 9:09PM|#

Finally. The first major issue where I part company with some libertarians. Will I still be able to call myself one of their number?

Contrary to, apparently, some longstanding libertarians I do think that there are certain tasks that need to be undertaken by the communities. Such as building roads, defense against common enemies and overseeing necessary monopolies (water supply, electricity), even if government may not the most efficient entity available to do these tasks. There is such a thing as sovereign function of the State and I see nothing wrong with that principle. Properly kept in check, government can be benign. The history of the last 226 years shows that this is possible. To make absoluteley everything private as a libertarian credo, strikes me as knee-jerk libertarianism.
Why that strict limitation to government when it comes to watching out for infringement on e.g. privacy? It is not always possible to switch to a more palatable service provider, at least not in a practical sense.
In the case of road taxes, I'd rather Government wasted some of my money and be at least somewhat accountable than some insurance company snoop into and micromanage my every wheeled move. Big Brother does not always look like a government. Lastly, what keeps Government from getting hold of the reams of information so conveniently collected for them? Nothing, if the case of the Telcoms happily cooperating with various 3-letter agencies to monitor private communication is any indication.

|11.27.07 @ 9:10PM|#

Aresen,

Let me put it this way: If aliens come to our fair world and ask to be taken to our leaders, is there any question that 90% of the world would point, however reluctantly, to North America? Nah, what we say, goes.

|11.28.07 @ 12:30AM|#

ask to be taken to our leaders

GWB?

*whimper*

|11.28.07 @ 12:54AM|#

Count me in with the skeptical. Letsee, this technology will more likely be used to:

Equitably distribute the cost of driving

or

Implement a control-freak transportation planner's wet dream: "Don't you know, there's no passing allowed on this highway between 2 and 6 pm? It's not conducive to harmonious traffic flow". or "You have been fined by the central driving authority for ... "

As far as you "billon" dorks go, take it to wikipedia!

|11.28.07 @ 2:47AM|#

For 90% of the planet, what we North Americans call a billion [10^9] is a milliard. For most of the planet a billion = 10^12 = North American trillion.

So a milliard rows of data is less than an North American billion rows of data? That doesn't seem right.

Shouldn't a milliard fill more?

|11.28.07 @ 4:17AM|#

If aliens come to our fair world and ask to be taken to our leaders, is there any question that 90% of the world would point, however reluctantly, to North America?

I'd point them to brussels. Then some functionary there could explain "You see, according to the Maastricht Treaty, there's a rotating presidency..."
ZAP!
"Foolish human, your clever scheme of centralized government has made you vulnerable! Hahaha"!

x,y|11.28.07 @ 9:03AM|#

There is such a thing as sovereign function of the State and I see nothing wrong with that principle. Properly kept in check, government can be benign. The history of the last 226 years shows that this is possible.

You forgot the [/sarcasm] tag there, pal.

|11.28.07 @ 9:32AM|#

Shouldn't a milliard fill more?

Aaand we have a winner!

C'mon, Stevo, 'fess up. How long did it take you to come up with that one?

robc|11.28.07 @ 9:36AM|#

martin,

If you are still around this morning, while I dont necessarily disagree with the rest, why are electrical companies listed under "necessary" monopolies? They havent always been, some towns even have two competing electrical companies now. The electrical monopoly is totally government created.

Extortionist|11.28.07 @ 9:39AM|#

Dear driver,

You mother lives in a shitty neighborhood. Pay up or leave her alone. She never loved you anyway.

Russ 2000|11.28.07 @ 9:40AM|#

Shouldn't a milliard fill more?

Someone's been watching Bullwinkle.

Jack|11.28.07 @ 10:00AM|#

Earth billion is 10^12
American billion is 10^9

Jozef|11.28.07 @ 10:47AM|#

A few clarifications for some issues that came up in this discussions, since I work in the industry and know a thing or two the article doesn't mention:

1. IEEE Standard: Kwix asked how long it's gonna take to have such standard. In fact, there is such a standard already - two of them to be precise: Canbus J1708 and Canbus J1939. For more information on those, start here. We monitor our clients' vehicles speeds, acceleration rates and times, amount of braking and harsh braking per 100 miles (the definitions can be adjusted), fuel consumption, axle weight and more. We are currently developing an interface with our navigation software, so that we can automatically determine when the vehicle went over the speed limit.

2. Using this in the US: While making sure we didn't violate anyone's IP, I coordinated between our tech staff and our lawyers. Turns out that for insurance purposes, Progressive has already been granted a business process patent.

3. Privacy issues: There may be some, but there are also very legitimate uses for these devices. For example, we provide our products to trucking companies that give bonuses to drivers who waste less fuel by driving less recklessly.

|11.28.07 @ 11:13AM|#

Jozef:

"For example, we provide our products to trucking companies that give bonuses to drivers who waste less fuel by driving less recklessly."

Couldn't less fuel waste also be achieved by rewarding high fuel mileage, adjusted for urban vs. highway miles, type of vehicle etc.? What constitutes "reckless"? Strikes me as one of those catchall phrases open to infinite interpretations. Isn't it better to establish hard parameters instead?

This data gathering craze is all very well, but not only offers avenues for abuse, but also often appears a tech fad: It's high tech, we're gonna use it. Hich cool factor.

|11.28.07 @ 11:18AM|#

Not still around, rather again. I'm seeing an addiction specialist!

I included electrical companies because the distribution system is a monopoly due to physical constraints: More than one line on the same route would be a huge waste. Whoever owns the grid, controls the product. Sort of like the railroad companies used to be.

Jozef|11.28.07 @ 11:42AM|#

martin: Actually, trucking companies are on the wrong end of the technology spectrum; they distrust new technology. Here's the rationale for using a system like ours: We provide numbers; they set their benchmarks and compare our numbers with benchmarks. Apparently, trucking companies are mainly concerned with idling time, which is most wasteful on fuel consumption, and with hards accelerations and braking, which indicates wasteful driving. One of our customers allows for only one harsh braking action per 100 miles; otherwise the driver gets penalized with lover wages.

|11.28.07 @ 11:52AM|#

Jozef:

They're concerned with idling time? Great! I'll keep that in mind next time I see a bunch of rigs stinking up the place idling away.

But, "One of our customers allows for only one harsh braking action per 100 miles; otherwise the driver gets penalized with lover wages."

You confirm my point. What about the poor sap driving around the Northeast getting cut off 10 times in a hundred miles? He'll have to pay the company instead of making a living.
Would you like to work for that customer? Their tech-happy managers must not ever have piloted a truck. More likely their bonuses ride on pleasing the boss, not on implementing sensible rules.

Jozef|11.28.07 @ 11:59AM|#

We're not involved in telling the bosses how to run their companies; we merely provide the product they demand. I personally may think that some managerial practices involving our data may endanger lives as they prompt the drivers to focus into the wrong aspects of driving, but it is the trucking management who'll ultimately know how to use our data properly; not us.

K.|11.28.07 @ 12:38PM|#

As long as the gov't doesn't get its hand on that database...

|11.28.07 @ 6:26PM|#

Reason was pushing this black box bulls--t 25 years ago, how we'd all have perfect market pricing on the toll roads of the future. You'd think, after Oregon decided to track all its drivers in the interest of taxing hybrid and conventional drivers equally, that y'all would give it a second thought. But no, here it is again. Maybe Kim Jong-il should start charging for those public executions; then we'd have market forces determining the number of Nork judicial murders.

Twiss Butler|11.29.07 @ 7:18PM|#

All of the comments so far simply show how successful present-day auto insurance marketing is at keeping both consumer experts and customers in a highly confused and emotional state about auto insurance.

In fact, Norfolk's fancy GPS-encumbered product is just another variation on the usual black box insurance classification and pricing methods. All are shaped by marketing schemes that are far removed from objective and accurate measurement of the activity that creates the costs auto insurance is supposed to cover - DRIVING. Every mile driven by an insured car transfers a statistical but real cost to the insurer.

To see how a straightforward, cost-based, free market system can work, calm down and have a look at www.centspermilenow.org. Read the FAQ first.