Pay-As-You-Drive car insurance is a concept whose time has come. It is an amazingly obvious concept, with wide benefits for consumers, the economy and the environment. The question is, why has it not taken off? It has been contemplated (I am told) since the early 1990s), and versions of it has been in test since 2000. It is only now that it being sold as a commercial product (as opposed to a pilot or test). Why has it not taken off yet?
Probably 3 reasons:
- The technology has been too expensive to date for telemetry. Norwich Union as an example had to build the black box from scratch at huge expense. Technology is now very cheap and becoming cheaper.
- Privacy concerns. People don't like being tracked. Not yet anyway. I don't entirely buy this reason – I think it is a storm in a teacup. Think about your mobile phone. You don't think your carrier knows where you (your phone) are always?
- Too complicated. The first set of products was very complicated. The Norwich Union one charged differently for time of day, type of road and combinations thereof. Just too hard to understand. That plus the fact that premiums were charged in arrears, so if you go on a long holiday by road, you get a big bill from your insurer.
- A Prisoner's Dilemma. But more about this in another post.
This post is about privacy. It is ironic that the only academic paper (that I can find anyway) on privacy and telematics was published in Australia in 2006. It proposes a solution where the onboard black box calculates the premiums in the confines of the car, and sends anonymous aggregate driving behavior data back to the insurer for modeling purposes, whilst preserving driver privacy. So let us get back to why privacy is a concern in the first place.
Why would people be concerned about privacy, with relation to -
- How they drive,
- When they drive, and
- Where they drive?
The only reasons I can think of are because of wrong doings. Either you're driving too fast, breaking the law in some other way, or maybe you're adulterous. Presumably existing privacy laws will protect you from your spouse catching you with your pants down, which leaves only breaking the law. From a society perspective, we have strict road laws, with large amounts of money being spent on a police force and infrastructure such as speed cameras. Safe driving is everyone's interest.
So the privacy concern for car insurance would be that the government confiscates a copy of the black box data and charges drivers for misdemeanors based on the data. Is that a bad thing? I don't think so. It is a lot better than the current system, and will result in much safer roads. So should legislation ban GPS based devices? Probably not. Ultimately consumers will vote with their wallets, and if they think they're at risk because they drive like hoons they will opt out. From an insurance company perspective, that is a good thing.
The flip side is however also an interesting conundrum. What if the car insurance company knows that a driver speeds often? What if it is clear from the data that a driver is putting others' lives at risk? Does the insurance company become complicit in the crime? Does the car insurance company have a moral or even legal obligation to report the driver?
Ultimately I believe that all car insurance will be telemetry based (Real Insurance does not rely on telemetry, but rather on a trust-based system), and all cars will be tracked by the government for all kinds of reasons (including taxes, law enforcement and traffic control). In the mean time, while the technology matures and while privacy issues are still open, we need some runs on the board with Pay As You Drive. The article linked is one of quite a large number in the US about the technology and privacy. The original source is the Insurance and Technology Blog.