Insurance Space

FOR years, drivers paid less for car insurance if they reported low mileage. Now, insurers are using hi-tech devices to track customers’ habits and offering deep discounts to those who drive not only less, but also cautiously.

In the US, Progressive Corp and GMAC Insurance, a unit of GMAC Financial Services, are the first and largest companies to offer this type of plan.

At least two smaller companies, including Unigard Insurance Co of Washington state in the US, a unit of QBE Insurance Group of Australia, also are poised to start similar schemes. Companies in Canada and Italy also have programs, and Hartford Financial Services Group Inc is testing the same technology in Connecticut.

Drivers who participate in these plans have devices installed in their cars that, depending on the technology used, track the number of miles driven, the speed at which cars are driven and even how often and how hard the brakes are used. Drivers who allow their habits behind the wheel to be monitored get cheaper insurance, or pay more if they’re lead-footed road hogs.

Usage-based insurance pricing would mean an estimated two-thirds of households would pay less in premiums than they do now, according to a report by the Hamilton Project at the Brookings Institution think tank.

Researchers Jason Bordoff and Pascal Noel calculate average savings at about $US270 per car per year. Some analysts and insurers say that after a slow start usage-based insurance could take off now that higher petrol prices are forcing consumers to drive less anyway.

Proponents of these plans say they could also ease traffic tie-ups and reduce carbon emissions by rewarding customers for driving less. Fewer miles on the road also mean fewer accidents — and fewer claims for insurers. With pay-as-you-drive insurance, drivers in the US would reduce their mileage by about 8 per cent, with $US51.5 billion in social benefits, mostly from reduced congestion and accidents, according to the Hamilton Project.

Progressive says it will relaunch and expand its program, formerly known as TripSense, later this month. Currently available only in Michigan, Minnesota and Oregon, TripSense subscribers get a device that plugs into their car’s diagnostic port — the place mechanics plug into when troubleshooting.

The Progressive device, however, keeps track of when, how far and at what speed the car is driven. Every six months drivers must remove the device and upload stored information to a computer and send it to the company.

When Progressive’s usage-based program, known as MyRate, is launched, it will require less driver effort. This program uses a telematic device, which gathers driver data and wirelessly transmits it over a mobile phone network.

Progressive says it will also track how often and how hard drivers brake and use the braking information when calculating rates. This system doesn’t include a global positioning system, so it won’t track a driver’s whereabouts. Drivers get a periodic report that tells them how many miles they’ve logged and other feedback about their driving habits. Based on the data, they’ll receive discounts ranging as high as 60 per cent, depending on the state laws.

The device could raise rates for some drivers. In some states where it’s permitted by law, drivers would be assessed a 9 per cent surcharge for logging excessive miles or driving at high speeds with hard braking, Progressive general manager Richard Hutchinson says.

Progressive, which has 7.1 million car insurance policies in the US, says 34 per cent of its customers in Michigan, Minnesota and Oregon who signed up by telephone or internet (instead of their agent) have been choosing the usage-based programs since 2004. The new plan is expected to be available in six more states by the end of this year and will also be sold by independent agents, the company says.

Brandon Biniecki, a 23-year-old information technology support technician in Michigan, says he signed up for Progressive’s usage-based program in 2006 for his Chevy Cobalt, a compact car. He drives less than 18,000 miles a year and receives a 5 per cent or 10 per cent discount from the company every six months.

Biniecki says he doesn’t mind being monitored in return for saving money, but admits he might not have signed up if a global positioning system was involved.

“That would be an invasion of privacy, with someone being able to know where I am at any point in time,” he says.

Other insurers include GPS in their monitoring devices. GMAC Insurance’s low-mileage discount program with OnStar, which expanded to a total of 34 states last year, grants discounts to users of vehicles equipped with GM’s GPS and communication systems. The company says enrolments have increased 200 per cent since last year, and customer retention rates are higher for those using the device.

To receive a discount, the driver must subscribe to OnStar, which is generally free for the first 12 months to buyers of new GM cars, and costs $US199 to $US299 annually after that. New customers who agree to have odometer readings sent directly to GMAC Insurance will earn a 26 per cent discount if they drive less than 15,000 miles annually. (Existing drivers earn discounts based on their actual mileage.)

Even heavy drivers can still earn a 5 per cent to 8 per cent safe-driver discount just for subscribing to the service.

Low-mileage discounts increase in tiers as fewer miles are logged. For instance, someone who drives less than 2500 miles a year can qualify for a 54 per cent discount.

Don West, 74, a real estate broker in Oregon, says he reluctantly switched his coverage to GMAC Insurance, leaving his long-time agent, a personal friend.

Because he and his wife drove less than a combined 15,000 miles a year, their rate plummeted. Says West: “I was paying $US2000 a year in premiums for the Cadillac and the Hummer, and it dropped the premium the first year I was on GMAC to $US886. I didn’t believe it at first.”

About 20,000 drivers participate in the GMAC low-mileage program with OnStar, out of 5 million OnStar clients, GMAC Insurance business development vice-president John O’Donnell says.

At this point, OnStar only relays odometer readings to GMAC Insurance, O’Donnell says. OnStar doesn’t continuously track drivers’ location and only pinpoints a car’s whereabouts at certain times — when the device is activated by a crash or the police receive a stolen vehicle report, for example. “There is an opportunity to get other information, and as we do we will be able to correlate risk to actual driving behaviour itself, rather than more predictive factors,” O’Donnell says.

The Wall Street Journal

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Tags: car insurance, Insurance