Posted : 04/12/2013
Pay-as-you-go (PAYG) car insurance continues to evolve. The latest development comes from ISO, which says it has created a standard that would give discounts to motorists if they drive in safer areas than where they normally garage their vehicles.
ISO, a branch of Verisk Analytics, makes "rating rules," or standards, that insurers use during underwriting to determine what policyholders pay for coverage. Some of the more familiar standards used to calculate risk include where drivers live, their auto model, age, credit score and accident record.
ISO's "GeoMetric" rule feeds into the growing PAYG car insurance model (also known as usage-based insurance, or UBI). With PAYG programs, drivers let insurers monitor their motoring by installing a telematics tracking device in their cars to qualify for potential discounts. Insurance companies say motorists, especially those who drive few miles, can save as much as 30 to 40 percent a year. Progressive's Snapshot plug-in program is one example, but other companies have similar products.
Through its GeoMetric program, ISO analyzes driving information gathered by insurers from participating policyholders. ISO then creates reports that insurers who buy the service can use to help determine which premium discounts motorists may qualify for. ISO says its new rating rule could result in a 5 to 25 percent discount, depending on the daily driving routes compared with where the car is garaged.
"The end result is a simple report showing the number of miles and time traveled by the insured within each risk tier, or band," according to a statement by ISO. "Vehicles that are garaged in higher bands but frequently travel into lower bands may be eligible for discounts."
ISO says it's seeking approval for the rating rule in 33 states and so far 19 have approved it. (Verisk would not say which states had approved the rule.)
"By assessing the risk of actual driving locations while protecting policyholder privacy, GeoMetric reports make it easier for insurers to use the GPS information collected via telematics to identify and award discounts to safer risks," Kevin Thompson, ISO's president of insurance programs and analytic services, said in a statement.
ISO claims its product will give insurers a more accurate view when awarding discounts. Insurers already consider several telematic-derived factors, which research firm Strategy Meets Action (SMA) detailed in a recent report based on surveys and interviews with several companies in late 2012. Miles driven was the most important, with 71 percent of insurers saying that factor would help determine if a discount would be offered. (See: "Report: Three in four insurers moving forward with pay-as-you-go.")
According to the report, the other main factors are:
SMA also found that more than 70 percent of companies plan to have a PAYG product in the next few years. But getting motorists to play along could prove daunting.
Most firms polled by SMA said only 1 percent of their clients are currently enrolled in these plans, and that they expect the number to climb to nearly 5 percent by the end of 2014. However SMA says that could all change as PAYG becomes more familiar to consumers. Insurers believe PAYG could capture about 20 percent of the market by 2020, according to the study. (See: "As economy sinks, pay-as-you-go insurance soars.")
Privacy advocates worry how the gathered details could ultimately be used, perhaps by advertisers or in criminal investigations. And some wonder if driving profiles could even be sold to employers who might judge workers or job applicants, in part, by their motoring habits. (See: "To save a buck, let your insurer be a 'Peeping Tom.'")
Insurers, however, claim they protect policyholders' privacy, which ISO echoes in statements promoting the GeoMetric rule. The primary safeguard, according to ISO, is that it "won't preserve" any of the motoring data after it's been analyzed.
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