Orlando
Insurers could face new transparency obligations as well as technological and regulatory challenges as they explore different methods of rating pay-how-you-drive and even pay-where-you-drive auto coverage, an industry executive warned.
Such programs, in which insurers use knowledge of potentially dangerous driving activity to set rates, were described by Roger Grobler, chief executive officer of Australia-based Real Insurance, speaking at the recent ACORD-LOMA Insurance Systems Forum.
Already, insurers offering pay-as-you-drive auto insurance–with rates based on how many miles a vehicle is driven–have sparked some concerns about privacy, where monitoring devices inside cars are used to track this information.
Mr. Grobler, whose company has a pay-as-you-drive program, said this problem can be avoided because insurers can also collect mileage information through periodic odometer inspections and other methods to avoid such privacy worries.
Mr. Grobler said Real Insurance uses a trust-based system for tracking mileage. Customers purchase coverage based on how many miles (kilometers in Australia) they plan to drive for the coverage period.
If the driver has an accident during the coverage period, and the odometer reading is above the purchased amount of miles, the claim is not covered, Mr. Grobler noted.
While buyers could conceivably roll the dice under this scenario, he said most consumers want to know they'll have coverage in the event of an accident.
Mr. Grobler said while pay-as-you-drive determines how many miles a person is driving, it does not identify if a person is driving poorly. For this reason, he said Real Insurance is looking into a pay-how-you-drive program.
Under this program, a telematic monitoring device (not a GPS system) would reveal how the car is driven as well as miles. It would capture information such as speed, the rate of acceleration and deceleration, and time of day a vehicle is driven.
Mr. Grobler cited Progressive as a U.S. insurer using a pay-how-you-drive system.
The concept, he added, could promote safe driving as customers who know, for example, that the system is capturing whether they are driving during higher-risk hours–between 11 p.m. and 5 a.m.–may therefore avoid doing so.
A system such as pay-how-you-drive could also change the way insurers view rating factors. Mr. Grobler said with the type of data captured, insurers can see if an 18-year-old is driving more like an experienced driver, and if so, that 18-year-old can be rated similar to a driver with more years behind the wheel. Conversely, if a driving veteran is operating like a reckless 18-year-old, rates can reflect that as well.
Pay-how-you-drive, and the information it captures, is also less of a privacy concern than another concept–pay-where-you-drive–according to Mr. Grobler.
Under pay-where-you-drive, a GPS system captures all driving information, including where an insured is at a given time. This system, Mr. Grobler conceded, is "quite invasive when it comes to privacy."
He said it can raise questions as to a carrier's possible legal obligations and exposures when, for example, its data reveals that a policyholder is speeding though a school zone every day. In such a case, is the insurer obligated to inform law enforcement, and can the insurer be held liable if the insured strikes a child one day in that school zone, he wondered.
How these pay-as/how/where-you-drive programs are treated by regulators and adopted by insurers remains to be seen. Progressive's "MyRate" program, for example, is available in only 10 states.
Insurers may be reluctant to adopt such a program because their systems might be based on the current methods of evaluating risk, Mr. Grobler noted. Starting a new pay-as-you-drive program may require a lot of changes, he added.
Mr. Grobler suggested establishing a pay-as-you-drive program as a separate, standalone brand.
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