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This post comes from Mark Chalon Smith at partner site Insurance.com.
Progressive is testing whether location details should be in the mix of factors that decide if motorists qualify for “good driver” discounts under its pay-as-you-drive Snapshot program.
Dave Pratt, Progressive’s general manager of usage-based insurance, told the Chicago Tribune at the recent Chicago Auto Show that the company will be collecting “location data from a sample of customers” this year as part of a research push.
Why do insurers care about location information? Pratt explained that certain areas or routes can be more hazardous than others, which raises risk for the driver and the insurer. Also, he added, someone who makes several left turns during trips may face more road dangers than someone who doesn’t.
In the past, Progressive and other major insurers have reassured consumers that they don’t monitor where people drive through their pay-as-you-drive telematics devices, which track other habits such as the time of day you drive, how many miles you drive, your speed and how often you brake hard. Based on this information, insurers say the customers might qualify for premium discounts of up to 30 or 40 percent.
But consumers and privacy advocates have long worried how the gathered details could be used, perhaps by advertisers who are interested in what stores you regularly visit or by police in criminal investigations. Another concern is that people who frequent neighborhoods with high crime rates or accidents might have their insurance rates increased after a data analysis.
Some critics are also concerned that driving profiles could even be sold to employers who might judge workers or job applicants, in part, by their motoring profile.
Progressive and other auto insurance companies, however, contend that they protect a policyholder’s privacy. And Pratt told the Tribune that the company would tell consumers if location tracking is added to Snapshot or another tracking product.
“If we decide to include location data in a future product version, we’ll let customers know before they sign up,” he said.
Pay-as-you-drive insurance continues to evolve
Progressive’s disclosure comes in the wake of the ISO’s announcement last year that it has created a standard that could 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 pay-as-you-drive insurance model. 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,” ISO said. “Vehicles that are garaged in higher bands but frequently travel into lower bands may be eligible for discounts.”
ISO said last year that it was seeking approval for the rating rule in 33 states, with 19 approving it so far (Verisk declined to name which states had approved it).
“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.
Here’s what insurers look at now
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 detailed in a 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.
According to the report, the other main factors are:
- Time of day or night the vehicle is driven — 50 percent of insurers would use the data.
- Braking habits — 46 percent.
- Vehicle speeds — 46 percent.
- Acceleration habits — 38 percent.
- Sharp turns — 31 percent.
SMA also found that more than 70 percent of companies plan to have a usage-based insurance 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 usage-based insurance becomes more familiar to consumers. Insurers believe it could capture about 20 percent of the market by 2020, according to the study.
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