Conventional rating systems are primarily based on past realized losses and the past record of other drivers with similar characteristics. More recently, electronic systems have been introduced whereby the actual driving performance of a given driver is monitored and communicated directly to the insurance company. The insurance company then assigns the driver to a risk class based on the monitored driving behavior. An individual, therefore, can be put into different risk classes from month to month depending upon how they drive. For example, a driver who drives long distance at high speed in one month might be placed into a high risk class for that month and pay a large premium. If the same driver drives for short distances at low speed the next month, however, then he or she might be placed into a lower risk class and charged a lower premium.
Norwich Union offered a type of telematic auto insurance in the United Kingdom,discontinued in 2008, called Pay as You Drive. This system employed a combination global positioning system (GPS) and cell phone in a car to monitor driving performance and communicate risk factors to the insurance company. Drivers were offered a discount if they exhibited safe driving as Norwich defined it. Trials conducted by Norwich Union in 2005 found that young drivers (18 to 23 year olds) signing up for telematic auto insurance had a 20% lower accident rate than average. [5]
In the United States, Progressive Corporation has an auto insurance program called MyRate. The program gives drivers a customized insurance rate based on how, how much, and when their car is driven. MyRate is currently available in Alabama, Kentucky, Louisiana, Michigan, Minnesota, Maryland, New Jersey and Oregon. Driving data is transmitted to the company using an on-board device. The device connects to a car's OnBoard Diagnostic (OBD-II) port (all automobiles built after 1996 have an OBD-II.) and transmits speed, time of day and number of miles the car is driven. There is no GPS in the MyRate device, so no location information is collected. Cars that are driven less often, in less risky ways and at less risky times of day can receive large discounts. Progressive has received patents on its methods and systems of implementing usage-based insurance and has licensed these methods and systems to other companies. Progressive has service marks pending on the terms Pay As You Drive and Pay How You Drive.
Other insurance companies are offering telematic auto insurance products in Germany, South Africa, and Japan.
More info:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1371965
1 comments:
I really liked the approach that you have explained above that an insurance company adopts to monitor the usage and driving pattern based on which finalizes the insurance policy premium amount. I would love to buy a policy for an insurance company that follows this strategy.
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