By M.P. MCQUEENJune 26, two thousand and eight; Page D1
For years, drivers paid less for automobile insurance if they reported low mileage. Now, insurance providers are using high-tech devices to track consumers’ habits, and offering deep discounts to those who not only motor less, but also cautiously.
In the U.S., Progressive Corp. and GMAC Insurance, a unit of GMAC Financial Services, are the first and the largest outfits to roll out this type of plan. At least 2 smaller outfits, including Unigard Insurance Co. of Bellevue, Wash., a unit of QBE Insurance Group of Australia, also are poised to start similar ones soon. Companies in Canada and Italy also have programs, and Hartford Financial Services Group Inc. is testing the same technology in Connecticut.
Drivers who participate in these plans have devices installed in their automobiles that, depending on the technology used, can track the number of miles driven, the speed at which automobiles are driven and even how often and how hard the brakes are used. By allowing their habits behind the wheel to be monitored, drivers get lower insurance rates — or pay higher premiums if they’re lead-footed road hogs.
Usage-based insurance pricing would mean an estimated 2-thirds of households would pay less in premiums than they do now, according to a report by the Hamilton Project at the Brookings Institution, a think tank. Researchers Jason Bordoff and Pascal Noel calculated average savings at about $270 per automobile, per year. Some analysts and insurance providers believe that after a slow start, usage-based insurance could take off now that higher gas prices are forcing consumers to motor less anyway.
Proponents of these plans say they also have the potential to help ease traffic tie-ups and reduce carbon emissions by rewarding consumers for motoring less. Fewer miles on the road also means fewer accidents — and fewer claims for insurance providers. With pay-as-ya-motor insurance, drivers in the U.S. would reduce their mileage by about 8%, with $51.5 billion in social benefits mostly from reduced congestion and accidents, according to the Hamilton Project.
Later this mo., Progressive claims it will re-launch and expand its program, formerly known as “TripSense.” Presently procurable only in Michigan, Minnesota and Oregon, TripSense subscribers get a special device that plugs into their automobile’s diagnostic port — the place mechanics plug into when troubleshooting. The Progressive device, however, keeps track of when, how far, and at what speed the automobile is driven. Every 6 months, drivers must remove the device and upload stored info to a computer and send it to the company.
When Progressive’s new usage-based program, known as “MyRate,” is launched, the technology will require less driver effort. This program uses a telematic device, which gathers driver data and wirelessly transmits it over a cellphone network. Progressive claims it will also track how often and how hard drivers brake and use the braking info when calculating rates. This system doesn’t include a global positioning system, so it won’t track a driver’s whereabouts. Drivers get back a periodic report that tells them how many miles they’ve logged and other feedback about their motoring habits. Based on the data, they’ll receive discounts ranging as high as 60%, depending on the state.
Bad-Driving Surcharge
But the device could raise rates for some drivers. In some states where it’s permitted by law, drivers would be assessed a 9% surcharge for logging excessive miles or motoring at high speeds with hard braking, said Richard Hutchinson, a general huge boss for Progressive.
Progressive, which has 7.1 million auto policies in force nationally, claims 34% of its consumers in Michigan, Minnesota and Oregon who signed up via telephone or Web (instead of their agent) have been choosing the usage-based programs since 2004. The new plan is expected to be procurable in 6 more states by the end of this year and will also be sold by independent agents, the company said.
Brandon Biniecki, a 23-year-old info-technology support technician in Monroe, Mich., claims that meandoring malchuck signed up for Progressive’s usage-based program in 2006 for his Chev Cobalt, a compact automobile. The steadfast fella drives less than 18,000 miles a year and presently receives a 5% or 10% discount from the company every 6 months, that meandoring malchuck claims. Mr. Biniecki claims that meandoring malchuck doesn’t mind being monitored in return for saving currency, but admits that meandoring malchuck might not have signed up if a global positioning system, or GPS, was involved.
“That would be an invasion of privacy, with somebody being able to know where I am at any given point in time,” that meandoring malchuck claims.
OnStar
GM’s OnStar technology, shown here, is used to gather motoring data.
Other insurance providers include GPS in their monitoring devices. GMAC Insurance’s Low-Mileage Discount Program with OnStar, which expanded to a total of 34 states last year, grants discounts to users of vehicles equipped with GM’s GPS and communication systems. The company claims that enrollments have increased 200% since last year, and that customer retention rates are higher for those using the device.
In order to receive a discount, the driver must subscribe to OnStar, which is generally free for the first 12 months to buyers of new GM automobiles, and costs $199 to $299 yearly after that. New consumers who agree to have odometer readings sent directly to GMAC Insurance will earn a 26% discount if they motor less than 15,000 miles yearly. (Existing drivers earn discounts based on their actual mileage.) Even heavy drivers can still earn a 5% to 8% “safe driver” discount just for subscribing to the service. Low-mileage discounts increase in tiers as fewer miles are logged. For instance, somebody who drives less than 2,500 miles a year can qualify for a 54% discount.
‘I Didn’t Believe It’
Don West, 74, a real-estate broker in Gresham, Ore., claims that meandoring malchuck reluctantly switched his coverage to GMAC Insurance, leaving his longtime agent, a personal mate. Because that meandoring malchuck and his lady drove less than a combined 15,000 miles a year, their rate plummeted. Says Mr. West: “I was paying $2,000 a year in premiums for the Cadillac and the Hummer, and it dropped the premium the first year I was on GMAC to $886 bucks. I didn’t believe it at first.”
About 20,000 drivers presently participate in the GMAC low-mileage program with OnStar, claims John O’Donnell, vice president of business development at GMAC Insurance, out of 5 million OnStar clients.
At this point, OnStar only relays odometer readings to GMAC Insurance, Mr. O’Donnell said. OnStar doesn’t continuously track drivers’ location and only pinpoints a automobile’s whereabouts at certain times — when the device is activated by a crash or the police receive a stolen-automotive report, for example. “There is an opportunity to get other info, and as we [as in us] do we [as in us] will be able to correlate risk to actual motoring behavior itself rather than more predictive factors,” Mr. O’Donnell claims.
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