Finance:Usage-based insurance

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Short description: Type of vehicle insurance

Usage-based insurance (UBI), also known as pay as you drive (PAYD), pay how you drive (PHYD) and mile-based auto insurance, is a type of vehicle insurance whereby the costs are dependent upon type of [1]vehicle used, measured against time, distance, behavior (Driver scoring) and place.

This differs from traditional insurance, which attempts to differentiate and reward "safe" drivers, giving them lower premiums and/or a no-claims bonus. However, conventional differentiation is a reflection of 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.

Concept

The simplest form of usage-based insurance bases the insurance costs simply on distance 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 one drives.[2]

Pay as you drive (PAYD) means that the insurance premium is calculated dynamically, typically according to the amount driven. There are three types of usage-based insurance:

  1. Coverage is based on the odometer reading of the vehicle.
  2. Coverage is based on mileage aggregated from GPS data, or the number of minutes the vehicle is being used as recorded by a vehicle-independent module transmitting data via cellphone or RF technology.[3]
  3. Coverage is based on other data collected from the vehicle, including speed and time-of-day information, historic riskiness of the road, driving actions in addition to distance or time travelled.

The formula can be a simple function of the number of miles driven, 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.


The smartphone as measurement probe for insurance telematics has been surveyed[4]

Another form of usage-based insurance is PHYD (Pay How You Drive). Similar to PAYD, but also brings in additional sensors like accelerometer to monitor driving behavior.[5]

Potential benefits

  • Social and environmental benefits from more responsible and less unnecessary driving.[according to whom?]
  • Commercial benefits to the insurance company from better alignment of insurance with actual risk. Improved customer segmentation.
  • Potential cost-savings for responsible customers.Potential[weasel words] * Technology that powers UBI/PAYD enables other vehicle-to-infrastructure solutions including drive-through payments, emergency road assistance, etc. * More choice for consumers on type of car insurance available to buy.[according to whom?]
  • Higher-risk drivers pay most per use, thus have highest incentive to change driving patterns or get off the roads, leaving roads more safe.[6][7] * For telematic usage-based insurance: Continuous tracking of vehicle location enhances both personal security and vehicle security. The GPS technology could be used to trace the vehicle whereabouts following an accident, breakdown or theft.could[weasel words][8] * The same GPS technology can often be used to provide other (non insurance) benefits to consumers, e.g. satellite navigation.[8]

Potential drawbacks

  • There are limits to the ability of any insurance system to predict future risk, including usage-based insurance. Some lower-risk drivers will still subsidize some higher-risk drivers, to some extent.
  • For usage pricing, driving habits must be documented, raising privacy concerns especially in the case of systems which use continuous GPS tracking of vehicles.[3][9] Personal information such as where you drive may also be inferred using only data such as speed and distance driven.[10][11]
  • Pricing plans based on behavior may be harder to compare between insurance companies, making it more difficult for consumers to price shop and reducing competition.

Patents

There are several issued patents[12] and pending patent applications that have been filed worldwide on various inventions related to telematic auto insurance. These include:


In June 2010, Progressive Auto Insurance filed a patent infringement lawsuit against Liberty Mutual over one of Progressive's Pay As You Drive auto insurance patents.[13]

In September 2010 Progressive Auto Insurance filed a declaratory judgment lawsuit against Hughes Telematics to have several its patents covering OBDII mounted wireless data loggers declared invalid. Progressive uses these devices from a competitive supplier, Xirgo Technologies.[14]

Impaired driving

Telematics (including Video telematics with a Dashcam) have been proposed or utilised in order to detect distracted driving. The use of telematics to detect drunk driving and Texting while driving has been proposed.[15] A US patent application combining this technology with a usage based insurance product was open for public comment on peer to patent.[16]

References

  1. ↑ Handel, Peter; Skog, Isaac; Wahlstrom, Johan; Bonawiede, Farid; Welch, Richard; Ohlsson, Jens; Ohlsson, Martin (Winter 2014). "Insurance Telematics: Opportunities and Challenges with the Smartphone Solution". IEEE Intelligent Transportation Systems Magazine 6 (4): 57–70. doi:10.1109/MITS.2014.2343262. ISSN 1939-1390. http://ieeexplore.ieee.org/document/6936433/. 
  2. ↑ "Usage-Based Insurance and Telematics". National Association of Insurance Commissioners. http://www.naic.org/cipr_topics/topic_usage_based_insurance.htm. 
  3. ↑ 3.0 3.1 J. Paefgen, T. Staake & F. Thiesse, "Resolving the Misalignment between Consumer Privacy Concerns and Ubiquitous IS Design: The Case of Usage-based Insurance", International Conference on Information Systems (ICIS), 2012
  4. ↑ Handel, Peter; Skog, Isaac; Wahlstrom, Johan; Bonawiede, Farid; Welch, Richard; Ohlsson, Jens; Ohlsson, Martin (Winter 2014). "Insurance Telematics: Opportunities and Challenges with the Smartphone Solution". IEEE Intelligent Transportation Systems Magazine 6 (4): 57–70. doi:10.1109/MITS.2014.2343262. ISSN 1939-1390. http://ieeexplore.ieee.org/document/6936433/. 
  5. ↑ ""Introducing ‘Pay How You Drive’ (PHYD) Insurance Insurance that rewards safe driving, 2016". http://www.ey.com/Publication/vwLUAssets/ey-introducing-pay-how-you-drive-insurance/$FILE/ey-introducing-pay-how-you-drive-insurance.pdf. 
  6. ↑ http://www.advocatedaily.com/areas-of-law/usage-based-car-insurance-as-refined-discrimination.html
  7. ↑ Dijksterhuis, Chris; Lewis-Evans, Ben; Jelijs, Bart; Tucha, Oliver; de Waard, Dick; Brookhuis, Karel (2016). "In-car usage-based insurance feedback strategies. A comparative driving simulator study". Ergonomics 59 (9): 1–13. doi:10.1080/00140139.2015.1127428. PMID 26653393. 
  8. ↑ 8.0 8.1 Iqbal & Lim, "A Privacy Preserving GPS-based Pay-as-You-Drive Insurance Scheme", International Global Navigation Systems Society, 2006
  9. ↑ Barry, Keith (August 19, 2011). "Insurance Company Telematics Trade Perks for Privacy". Wired. https://www.wired.com/autopia/2011/08/insurance-company-telematics-trade-perks-for-privacy/. 
  10. ↑ Threat to Privacy Found in Auto Insurance 'Pay as You Drive' Programs, https://www.sciencedaily.com/releases/2013/09/130910165316.htm
  11. ↑ Inferring Trip Destinations from Driving Habits Data by Dewri et al. (ACM Workshop on Privacy in the Electronic Society 2013)
  12. ↑ Nowotarski, Mark, "Progressive Builds a Fortress of Patent Protection", Insurance IP Bulletin, October 15, 2004
  13. ↑ Shaheen Samavati "Progressive files suit against Liberty Mutual", The Plain Dealer, June 21, 2010
  14. ↑ Patent Q&A Declaratory Judgment, Insurance IP Bulletin, October 2010
  15. ↑ Harold Davis "’Black Box’ idea travels to cars", The News-Times, 5/22/09[Usurped!]
  16. ↑ US patent application 20090063201 "SoberTeen driving insurance"



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