PAYD

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PAYD (or Pay As You Drivetm) is a type of telematic automobile insurance whereby the costs of motoring including motor insurance and road pricing are dependent upon vehicle usage, particularly distance travelled. Pay As You Drivetm is a trademark of Norwich Union

Contents

[edit] Economic and Environmental Impact

In economic terms, PAYD can be regarded as a form of context-aware service.

PAYD has been strongly promoted by environmental and transport groups, mostly as a way of encouraging people to use their cars less.

However, some transport planners have suggested that PAYD could be seen instead as a way of generating funds for building additional roads [1].

[edit] PAYD Insurance

[edit] Concept

The simplest form of Pay As You Drive bases the insurance costs simply on the number of miles driven. However, the general concept of Pay As You Drive includes any scheme where the insurance costs may depend not just on how much you drive but how, where and when you drive.

Pay as you drive (PAYD) means that the insurance premium is calculated dynamically, typically according to the amount you drive. Driving is monitored using a secure black-box device in the vehicle, linked to a national network of satellites and data recorders. The formula can be a simple function of the number of miles you drive, or can vary according to the type of driving or the identity of the driver. Once the basic scheme is in place, it is possible to add further details, such as an extra risk premium if someone drives too long without a break, uses their mobile phone while driving, or travels at an excessive speed.

Insurance companies have always tried to differentiate and reward "safe" drivers, giving them lower premiums and/or a no-claims bonus. However, conventional differentiation is a reflection of past history rather than present patterns of behaviour. This means that it may take a long time before safer (or more reckless) patterns of driving and lifestyle feed through into premiums.

PAYD provides a much more immediate feedback loop to the driver, by changing the cost of insurance dynamically with a change of risk, and this means drivers have a stronger incentive to adopt safer practices. For example if a commuter switches to public transport or working at home, this immediately reduces the risk of rush-hour accidents. With PAYD, this reduction would be immediately reflected in the cost of car insurance for that month.

[edit] Potential benefits

  • Commercial benefits to the insurance company from better alignment of insurance with actual risk. Improved customer segmentation.
  • Potential cost-savings for responsible customers.
  • Social and environmental benefits from more responsible and less unnecessary driving.

[edit] Potential drawbacks

  • The system recognises only codified, rather than actual, risk. A speeder, for example, would be heavily penalised in comparison with someone who drove in observance of the speed limit. This would not take into account the circumstances involved, eg if the speeding driver in question was driving in an otherwise safe manner, or if the slower driver was changing lanes abruptly, or driving in an unattentive or careless manner.
  • Charges would be very high for young drivers, especially at night, and as such would strongly discourage them from driving socially. In many areas public transport is non-existent at night, and such high charges could have a strong negative impact on their quality of life.
  • GPS tracking of vehicles, 24 hours a day, could be seen by many people as an unacceptable infringement on their right to privacy.
  • The potential of PAYD systems for automated traffic law enforcement could result in a reduction of the use of human traffic police as has been reported since the widespread introduction of speed cameras. This could result in reduced detection of drunk driving and other dangerous offences.

[edit] Commercial Activity

[edit] Commercial products

Insurance companies offering various forms of PAYD either as fully commercial products or at least on a trial basis include Norwich Union in the UK, Hollard Insurance in South Africa, AIOI Insurance Company in Japan, Progressive Insurance (TripSense) in the US and Aviva in Canada.

[edit] Tests

A number of tests of telematic auto insurance are currently underway or recently completed. These tests are being conducted in many different countries. They include:

[edit] Patents

Telematics Insurance System from AIOI patent application WO 2005/083605
Telematics Insurance System from AIOI patent application WO 2005/083605

There are several issued patents [2] and pending patent applications that have been filed worldwide on various inventions related to telematic auto insurance. These include:

  • EP patent 0700009 “Individual evaluation system for motorcar risk”
  • US patent 5797134 "Motor vehicle monitoring system for determining a cost of insurance" Progressive auto insurance
  • jp patent 2002259708 "Vehicular Insurance Bill Calculating System, On-Vehicle Device, and Server Device" Toyota
  • wo patent 2005083605"Insurance Fee Calculation Device, Insurance Fee Calculation Program, Insurance Fee Calculation Method, and Insurance Fee Calculation System", AIOI Insurance Company.

[edit] See also

[edit] References

  1. ^ "King County gets $1.9 million to test drive innovative statewide car insurance program", March 27, 2007
  2. ^ Nowotarski, Mark, "Progressive Builds a Fortress of Patent Protection", Insurance IP Bulletin, October 15, 2004

[edit] External links

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