A view from one of our utilities specialists – Martin Alabone.
Let’s look at other utility models:
- Domestic water in this country is largely unmetered, as the cost of installing the infrastructure is not warranted given the fact that one household consumes about the same amount of water as the next.
- Domestic energy is metered mainly on a volume basis because, generally, we can’t/won’t regulate when we use energy. Economy 7 (night-time cheap rate) is about as sophisticated as it gets, but a lot of energy companies are trying to phase it out.
- Telephone/mobile usage is metered and complex usage tariffs exist, as we all have very different usage patterns and we tend to regulate our usage.
I think car insurance is closest to the domestic energy model. The insurance industry has already come up with the right tariffs for this model; Social, Domestic & Pleasure unlimited, SDP + Business unlimited, limited mileage; and that pretty much covers it!
I ran a quote on coverbox for my main car. All four quotes were either more expensive or about the same as my current non-PAYD insurer. And I’m sure the quote for my weekend ‘fun car’ would be more expensive than my limited mileage policy.
Usage based insurance will only work if Big Brother forces it through legislation for road-use charging, or if it can be proved that there really is a strong link between knowing how I drive, what risk I therefore represent and how much I need to be charged.
Halve my insurance quote and I’m interested. Knock £20-30 off…why bother?
February 22, 2009 at 10:23 am
Let me try to argue on behalf of the “PAYD is like mobile phone usage” camp from a couple of perspectives…
We have a car that, since we moved to London, gets used once every two weeks for a big shopping trip and gets occasional weekend use from March to October for trips out to the countryside to play golf. Other than that, it generally sits at the door depreciating and gathering dirt.
Because we have a nice car with a 2L engine and we live in central London, we pay a high rate for our insurance (it virtually doubled when we moved into London). That premium rate goes up another notch because we park on the street, even though we live in a quiet location with little through traffic other than bicycles and pizza delivery scooters.
Now, if I could get a truly personalised tariff that accurately reflected our real situation, then I’d have to give it some very serious consideration. But, as Martin says, I’d only be interested if this resulted in a significant reduction in the cost of my insurance. Otherwise why bother?
Like Martin, I also fall into the anti-Big-Brother brigade and used to own a weekend “fun car”. Whilst I was always careful not to transgress the law, knowing that my insurer (or, worse, the government!) would be able to track or calculate information about my driving habits doesn’t sit well with me.
So…I guess the only people who have absolutely nothing to fear from PAYD insurance or driving habit tracking are people who drive small cars slowly at quiet times of day. And, because of that, they probably have nothing to gain from a PAYD policy. Equally, insurers have little to learn from this type of driver.
So, on that basis, I’d agree that usage-based car insurance might actually be a waste of time and effort. At least if it remains simply a question of usage-based insurance and people can choose whether or not to have their journeys tracked.
So, does the real determining factor lie with legislation on usage-based road tax?
Again, as a minimal car user who lives inside the London congestion charge zone, I’d fully support usage-based road tax, as we rarely use our car. Many people around the UK use their cars much more often than I do, but pay less road tax than I do, because they have a smaller engined car/lower emissions.
The same was true with my old “fun car”, which did less than 2K miles per year but fell into the “disgustingly pollutant engine” category. So I paid even more for taxing that than our main car which, at the time, was doing about 10-12K miles a year. And that’s not right.
But, let’s be honest; even for an occasional car user, road tax is still remarkably good value for money. So how much would I be likely to save through usage-based road tax?
So, maybe it really is a case of “why bother”?
February 22, 2009 at 9:00 pm
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March 17, 2009 at 7:31 am
I discussed this with a colleague from the retail insurance sector yesterday and we came to the following conclusions about PAYD motor insurance in the UK:
- The drivers towards adoption are just not strong enough at the moment given the high cost to deploy it – price advantage for the customer, ‘softer’ benefits like mapping your journeys etc
- Adoption in the UK will only become economic once manufacturers install devices (and ones that conform to a communications standard) in cars
- This will only happen once the government forces/encourages it via legislation, e.g. for road use charging
- Then it makes sense for only a few organisations to collect and marshall all the resulting data (or even have a government sanctioned monopoly like the National Lottery is today, based upon bidding for the contract)- the mobile telco operators may be well placed to perform this role
April 8, 2009 at 4:24 pm
I would like to respond to some of these comments as a system supplier of PAYD and RUC Pricing software and hardware.
Firstly, the Coverbox is not a typical example of how PAYD should work. We and friends also ran cost comparisons on their site and they actually came out more expensive than conventional insurance!
They were originally a tracking company who have opened up a driver sign up portal and then throw those who sign up to 2 or 3 insurance companies. No insurance companies are going to refuse new drivers!
This approach is giving PAYD a bad name.
A proper PAYD model should look at risk measurement as well as just usage or distance. The point being that a low mileage driver that drives like a T**T would actually get lower premiums if we stuck to the distance only equation.
If we can reward safe driving in turn with a distance multiplier then insurers can reduce premium as Low Risk insurance Books mean higher business efficiencies for them.
In essence this means that having a book with known measurable low risk drivers is better than having a book with drivers of unknown risk. This is why premiums are so high.
This is the true spirit of PAYD, and also alleviating real time tracking and polling means that the big brother worry is also alleviated.
This is a big step change for an industry where previously not much risk is known apart from historic logs on no claims.
Hence the higher premiums.
If we reward drivers through PAYD pricing based on the above then, you will see lower premiums.
Hardware cost is also no longer an issue, believe me.
The US are going to explode PAYD shortly with various companies now about to trial, the UK will follow, and I believe that then we will see a change.
Regards
Kevin
April 10, 2009 at 1:52 pm
Interesting comment, Kevin. You didn’t mention which company/solution you represent – but I followed your email address to: http://www.iris-global.org. I’ll browse your site when I get a chance.
Also, you said:
I agree that taking away the real-time aspect of a solution would reduce part of the big brother worry. But not all of the worry. Although you don’t describe your solution, presumably it still involves *some* capture of actual speed, distance and location information. Whether this is available real-time or not, it’s still available eventually – and this was certainly the case with the NUI PAYD solution we worked on. So some of the big brother worry remains, regardless of the “spirit of PAYD”.
I still remain unconvinced, but would be happy to hear more from you on this.
March 30, 2010 at 7:25 am
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