PAYD

From Wikipedia, the free encyclopedia

PAYD (or Pay As You Drive™) is a type of telematic automobile insurance sometimes known as usage based insurance whereby the costs of motor insurance are dependent upon vehicle usage, particularly distance traveled. Pay As You Drive™ is a trademark of Norwich Union in England and Progressive in the US. The term pay as you drive has also been used by certain governments in relation to another cost of motoring, namely road pricing.

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[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 changes in 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.
  • Due to the 24/7 aspects of vehicle location, it enhances security - both personal security and vehicle security. The GPS technology could be used to trace the vehicle whereabouts following an accident, breakdown or theft. [1]
  • More choice for consumers on the type of car insurance available to buy
  • The same GPS technology can often be used to provide other (non insurance) benefits to consumers,e.g. satellite navigation [1]
  • Social benefits from accessibility to affordable insurance for young drivers - rather than paying for irresponsible peers, with this type of insurance young drivers pay for how they drive.

[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. [1][2]
  • 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 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 and Aviva in Canada.

[edit] Progressive Insurance

TripSense is the vehicle insurance discount program developed by Progressive Insurance. It is currently being evaluated in trial programs in Michigan, Minnesota, and Oregon.

The program allows policyholders to earn a discount on their premiums by having their driving data collected by an on-board TripSense device. Collected data is reviewed by the policyholder before it is shared with the insurance company. The policy holder is told how much of a discount, if any, he or she qualifies for based on their data. Policy holders can then choose to share the data with the insurance company and earn the discount, or withhold the data and pay the normal premium. The amount of discount is based on maximum speeds, numbers of miles driven, and times of day driven. Acceleration and braking data is also collected, but is not used in the calculation of the discount.

The TripSense device connects to a car's OnBoard Diagnostic (OBD-II) port. (All automobiles built after 1996 have an OBD-II.) The device records information about the duration of a trip, the mileage driven, the rate of accelerations and deceleration, and speed. There is no GPS in the TripSensor device. No location information is collected.

The TripSensor device is based on the Davis Instrument's CarChip. The CarChip is normally sold as a means for parents to monitor their children's driving behavior. Users may directly view their data by connecting the device to their computer's USB port.

[edit] AIOI

AIOI introduced a Pay as You Drive insurance product in Japan in 2005. They partnered with Toyota to develop the technology. The technology is based on Toyota's G-Book terminals. <AIOI 2005 annual report, page 37.</ref>

[edit] MileMeter

MileMeter is an insurance startup company that intends to offer a patent pending form of pay-by-the-mile form of auto insurance. They were first runner up in the 2007 Amazon.com Web Services Startup Challenge.

[edit] IRIS

The International Research and Intelligent Systems Global (IRIS) company's Pay As You Drive and Fleet Risk Management products won Strategic Risk magazine's "European Risk Management Product of the Year 2008". These products are currently under evaluation by two major insurance companies. [3] IRIS is located in Coventry, England

[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 [5] and pending patent applications that have been filed worldwide on various inventions related to telematic auto insurance. These include:

In order to make sure that patents did not hinder its Pay as You Drive development program, Norwich Union purchased the UK version of EP0700009 and obtained an exclusive license to any EU patents that may emerge from Progressive's EU patent applications.

[edit] Trademarks

[edit] See also

[edit] References

  1. ^ a b c Iqbal & Lim, "A Privacy Preserving GPS-based Pay-as-You-Drive Insurance Scheme", International Global Navigation Systems Society, 2006
  2. ^ Valdes-Dapena,Peter, "Big Brother can save you money", CNN Money.com, July 17, 2007
  3. ^ "IRIS earns top European accolade", The Birmingham Post, May 12, 2008
  4. ^ "King County gets $1.9 million to test drive innovative statewide car insurance program", March 27, 2007
  5. ^ Nowotarski, Mark, "Progressive Builds a Fortress of Patent Protection", Insurance IP Bulletin, October 15, 2004
  6. ^ Commercial web site for Norwich Union showing trademark
  7. ^ US registration of "Pay as You Drive" trademark

[edit] External links

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