Progressive paid Harris Interactive to conduct a telephone survey of 1,000 US adults in August, and determined:

70 million + drivers in the US could save with usage-based insurance
50% of respondents say they drive under 12,000 miles per year, below than the national average of 13,476 miles a year;
84% of drivers define themselves as cautious, 49% as defensive (39 percent); and
88% of drivers are rarely on the road between 12-4 am

All these conditions point to Pay as you drive car insurance as the future and fast becoming the present.

By Cornelius Frolik

A popular program that offers premium discounts to motorists who agree to have their driving patterns digitally recorded worries some privacy advocates who say it is needlessly intrusive and could pave the way for future infringements.

About 250,000 Progressive customers have participated in the company’s Snapshot program in the hopes their driving behavior will earn them savings.

To partake, motorists attach a device to their vehicles’ onboard diagnostic computer that then records and transmits data to the company for six months. It measures miles driven, driving times, braking patterns and speed.

“Snapshot is a voluntary, discount-only program,” said Brittany Senary, a spokeswoman for Progressive, Ohio’s second largest auto insurer.

But Paul Stephens, director of policy and advocacy with the California-based Privacy Rights Clearinghouse, said the device also measures the time of day the vehicle is in use, which is unfair to people who work odd hours. The next step could lead insurance companies to monitor other elements of their customers’ driving behaviors, he said.

“We are on a slippery slope,” Stephens said. “They start out by collecting a little bit more information than they need … then where does it stop?”

He added the information could hypothetically be subpoenaed by law enforcement agencies in police investigations.

The device Tina Brandon attached to the steering column of her car and van looks like a futuristic garage-door opener, but instead of operating doors, it records data and saves her money.

The device, called a Snapshot, records and transmits the number of miles she drives, her speed, the time of her trips and her braking behavior. The data then goes to her insurance company, Progressive.

Brandon, 40, of Huber Heights, said her safe driving behaviors have already cut the cost of insuring her van by about $100 annually. She hopes the Snapshot program will slash the cost of insuring her car.

“Every little bit counts in today’s society,” she said.

Brandon is one of about 250,000 Progressive customers who have signed up for the company’s Snapshot program in the hopes that digital documentation of their driving habits will result in a savings of up to 30 percent off their insurance bills.

Insurance companies typically set rates based on a customer’s age, gender, place of residence, traffic record, accident history and credit score. But as technology improves and becomes less expensive, some insurance companies are using high-tech methods to set and lower their customers’ insurance rates.

Privacy advocates, however, warn that improved technology can reduce customers’ expectation of privacy.

Progressive, which is the second largest insurer in Ohio, began offering the voluntary, usage-based insurance program in the state in June 2010, and rolled out an associated advertising campaign this year. Flo, the perky character in the Progressive commercials, discussed the Snapshot in a recent ad.

Customers who have vehicles made in 1996 or newer are eligible to participate in the program, because those cars and trucks have diagnostic ports that connect to their on-board computers that track relevant information, said Richard Hutchinson, usage-based insurance general manager with Progressive.

After signing up, customers receive a Snapshot device in the mail that they plug into the computer port. Using the cellphone network, the Snapshot transmits data about the vehicle’s movements and the motorist’s driving habits.

After 30 days, Progressive reviews the data to determine if the customer is a eligible for a discount, which is applied immediately. At the end of six months, the customer returns the Snapshot and the company then determines if their driving patterns earn them a discount that will remain on their policy.

“On average, Snapshot drivers save an average of 10 (percent) to 15 percent,” said Brittany Senary, spokeswoman with the company. The average annual savings is $150.

Although the device records the vehicle’s speed, Hutchinson said speed is not a variable when calculating the potential discount. He said also Snapshots do not have GPS, and the data transmitted will not be used to increase a customer’s rate.

“It is a discount-only program,” he said. “Best case, you get up to 30 percent off your insurance rate. Worst case is 0 percent.”

From a business standpoint, the Snapshot program makes financial sense because it will attract customers who want more power over their insurance rates, Hutchinson said.

It certainly appealed to Brandon, who said she signed up for because she obeys the rules of the road and drives cautiously and defensively.

The Snapshot program is not the only discount program of its kind.

Allstate offers Drive Wise, which also rewards safe and low-mileage drivers who agree to attaching wireless telematics devices to their vehicle’s computers for measurement purposes.

A company spokesman said the program is currently only available in Illinois, but the plan is to expand into other states later this year. State Farm, the state’s largest auto insurer, has the Drive Safe and Save program, which tracks driving habits using customers’ OnStar, a subscription-based safety and communication system.

Jeff Rieder, president of the Ward Group, which is a management, consulting and research firm located in Cincinnati, said the usage-based insurance model appeals to insurance companies because although it reduces their revenue, they believe it will attract safer drivers, which will save them money in fewer claims.

“For an average insurance company, they will have about 24 (percent) to 25 percent of their policies make a claim in a given year,” he said.

“If they get customers as a whole who are a better risk, and they can reduce that 25 percent down to 22 or 21 percent, that ends up being a huge savings for them.”

Rieder, however, predicts that if discount programs grow in popularity, some insurance companies could end up charging people who do not participate in the discount programs higher rates on the assumption they are worse drivers.

“For some companies, if they don’t make the correlating adjustments for bad drivers to charge them the appropriate rates, it could disproportionately lower the revenue for the insurance company,” he said. “There has to be correlation for insurance companies to charge the worst drivers more.”

Yesterday, Progressive, an auto insurance company, gave details about their new program called the Snapshot Discount. The Snapshot Discount is under the Pay-As-You-Drive program which gives the clients an opportunity to cut down more on the rates of their car insurance. Progressive declares that they are the very first auto-insurance company to introduce this concept to the market.

The Snapshot Discount device is placed in the On Board Diagnostic port which is found somewhere on the steering wheel. It works by analyzing the client’s driving routines for a period of six months and then it calculates the total discount earned by the client. This auto insurance device also secures the confidentiality of the client as it does not record the whereabouts of the car and how fast the client drives the car; this device is not equipped with GPS system.

After a month with the Snapshot Discount device, the client may see how much they have earned by logging in to their policy. This is very helpful for it allows the client to modify their driving routines to be able to earn more discounts. Given the efficient use of the Snapshot Discount device, the company proclaims that a client can secure a maximum of 30 % of their policy.

“We believe Snapshot is a game changer-representing the future of auto insurance as our mobile and interconnected world gives us the opportunity to offer immediate and substantial savings to our customers,” the President and CEO of Progressive Glenn Renwick discloses. The Snapshot Discount device is as of now only available in 32 states, but Progressive tells that more states would be reached within the year.

The Snapshot is a small dashboard device that plugs into an auto’s diagnostic system and records data that is transmitted back to Progressive via wireless technology. Customers can view the same info on a website set up for this specific purpose.

The information will then be used to determine if a customer qualifies for significant discounts based on safety, including how, how much and when the car is driven. Cars driven less often, in safer ways and at safer times of days are most likely to get a discount. Although Progressive and other auto insurers gather some of this information at the present time, it is based on the affirmative statements of policy-holders or applicants, without the ability to prove otherwise.

The result is that discounts are never as deep as they can be when the data is confirmed to be true. In essence, some of what we all pay for insurance coverage is based on collective risk. One person might pay less based on the assertion that only 7,500 miles are driven each year vs. the national average of 12,000. That discount can be made sweeter after use of the Snapshot when that precise number of miles driven are reviewed along with the other key data points collected.

Progressive has announced that some drivers will be able to reap the benefits of discounts up to 30% in as little as 30 days after information is gathered that demonstrates that they don’t drive aggressively and put few miles on their vehicle. The average time of usage is expected to be six months, after which the device gets returned to the company. If the six-month’s worth of information demonstrates that a driver is consistent in his or her good habits, low mileage and safety, discounts will become permanent.

Thirty two states allow for the device to be used and the company’s media release about the campaign claims that the 100,000 Snapshot devices are currently in use. The company has 11 million customers nation wide.

According to Advertising Age, Progressive’s competitors in the auto insurance market have nothing that even comes close to the sophistication of Snapshot. State Farm works with On-Star to collect mileage data on a small basis for a possible 10% discount and Allstate’s device is only available in the state of Illinois.

Critics will say that it is another piece of evidence that creeping Big Brother behavior is alive even in commercial companies’ relationships with its consumer base. Yet, to reduce premiums, many folks without anything to be afraid of will be able to demonstrate why they deserve to be paying less than they are at the present time.

As with all electronic and computer data that is stored by companies, when law enforcement and legal agencies come calling for information about individuals, it will have to be shared but only if accompanied by a subpoena. Since no location data is stored, Progressive will not be able to confirm where a policy holder lives or travels, but it will know how fast and how far you drive. In exchange for deeper discounts, the wary might be convinced it’s a great idea.

Pay-As-You-Drive auto insurance programs are gaining fans because they can provide drivers big discounts, over 20%. Usage based insurance depend on type of vehicle used, and measures against a driver’s time, distance and place. Pay as you drive (PAYD) means that the insurance premium is calculated dynamically, typically according to the amount you drive.

Types of coverage for usage based auto insurance:

1. Coverage is based on the odometer reading.
2. Coverage is based on the number of minutes the vehicle is being driven and transmitted by cell or RF signal.
3. Coverage is based on hard braking, speed and time-of-day driven.

With car monitoring based insurance driving data is automatically transmitted to the insurer. Driver behavior dictates the cost of insurance dynamically, as their driving changes. Drivers have a bigger incentive to drive safe. If a driver commutes to work less often, that would reduce the risk of rush-hour accidents. With computer monitoring, that reduction would effect their insurance rates right away.

How Much Can Insureds Save?

Pay-as-you-drive car insurance is for drivers who log less than 15,000 miles a year. The less you drive, the less you pay, which can provider discount, from 8% to 54%, says Tim Hogan, GMAC’s vice president of national accounts. Mileage information is collected by a telematics-based vehicle tracking system, and your discount grows for every 2,500 miles fewer you drive. For example, someone who drives between 10,001 and 12,500 miles might save 18%, while someone who drives under 10,000 miles a year could save 25% off standard rates.

Companies offering Pay As You Drive Car Insurance

MileMeter was the first is car insurance company offering pay-by-the-mile auto insurance. They currently only provide insurance in the state of Texas.

Progressive has a pay-as-you-drive program called Snapshot. Snapshot provides discounts of up to 30% per year from its regular car insurance rates. Snapshot is currently available through 25 states. Because each state has separate insurance regulations, the Snapshot is slowly getting approval in each state. Snapshot provides discounts on auto insurance based on mileage, times of day the car is used and hard braking. Driving late at night 12am to 4am a notorious time for accidents and sudden acceleration and stops are warning signals.

Snapshot works only for cars made after 1995 because the device needs an onboard computer and diagnostic port. The device monitors mileage, time of day when the car is driven and driving style. There is no GPS tracking exact location, which has some privacy issues.

GMAC Insurance, in collaboration with OnStar, offers a discount in 35 states for those who have a GM vehicle equipped with OnStar and drive fewer than 15,000 miles per year. By the end of 2011, GMAC’s goal is offer the monitoring (with associated discounts) in most states.

Disadvantages of Pay As You Drive Car Insurance

- Prepaid insurance charges for future driving rather than past risk, so it’s imprecise.
- Distance based driving may not differentiate highway, city, or country road driving.
- A tracking system may charge less to a slower driver who changes lanes abruptly, or drives in an inattentive or careless manner.
- Some systems may use location tracking, which could unacceptable infringe on driver’s privacy.

By SHERYL JEAN

Chris Gay is out to change the auto insurance industry.

Of course, MileMeter CEO and founder Chris Gay insures his 1996 Volvo 850 with his company. He calls MileMeter the ‘anti-insurance insurance company,’ with its pay-by-the-mile auto coverage.

He launched MileMeter in 2008 as the nation’s only company to offer pay-by-the-mile auto insurance without using a vehicle-tracking device. The online-only company is licensed to provide insurance in Texas, but it’s on the verge of expanding into other states and offering more options.

Gay came up with the idea after a bad insurance experience when his car was hit by another driver in 2004. He calls MileMeter the “anti-insurance insurance company.”

Customers pay in advance for up to 6,000 miles at a time and can buy more online if needed.

Rates are based on customer-supplied odometer photos, age, home location and vehicle type but not credit scores or driving habits.

The theory is that insurance companies can offer lower rates to people who seldom drive and are deemed less risky.

Insurers say mileage-based coverage is best suited for retirees and college students who don’t drive much, people who use mass transit but need a weekend car, business travelers who fly a lot and families with an extra car they drive only occasionally.

Nearly two-thirds of U.S. households would pay about $270 less per car under a mileage-based insurance program, according to a report by the Brookings Institution.

Picking up speed

Mileage-based insurance has been around for about a decade, but it’s been slow to spread.

That’s changing: About 10 auto insurers have added or started testing pay-as-you-go policies in the last two years. Such policies are now offered in about 35 states by insurers such as Progressive, American Family and GMAC Insurance.

Alex Hageli, director of personal lines for the Property Casualty Insurers Association of America, attributes the increased interest to more advanced technology and the time it takes to build a system to monitor and analyze data.

Mileage-based insurance is “the next big thing,” Hageli said. “It’s one more step toward getting the most accurate picture of the level of risk a driver represents for insurers.”

One in four Progressive customers sign up for its pay-as-you-drive program, said Richard Hutchinson, general manager of usage-based insurance. He wouldn’t disclose customer numbers or say whether the program is profitable but said the company is committed to expanding it to more states.

Ohio-based Progressive was first to try mileage-based pricing – starting in Texas – and now offers it in 25 states. Its pricing also includes times of day driven and driving behavior collected by a device under a car’s steering column.

Gay, a former systems analyst software programmer, wrote the code for MileMeter in 2004. He also raised $260,000 in seed capital and won Texas regulatory approval.

But by late 2007, chief executive Gay nearly shut down the company during the financial crisis. Then, he received a phone call that saved it: MileMeter won Amazon.com’s start-up contest, which helped attract $7.65 million in capital from Compass Global Fund.

Thousands of clients

Today, MileMeter has several thousand customers, said Gay, 34. He wouldn’t disclose revenue but said the eight-employee company is profitable on underwriting.

Most MileMeter customers drive less than the national average of 12,000 miles a year and pay about $200 a year for insurance, Gay said. The Texas average is $854 a year for liability, collision and comprehensive coverage.

“It’s been great,” said Rebecca Jackson, a MileMeter customer for 18 months. “I [fly] 95 percent of the time for work, so I have a 3-year-old car with 15,000 miles. I can pay for what I need.”

Jackson, who lives in Dallas and drives up to 4,000 miles a year, now pays about $600 a year for full coverage that used to cost her $1,400 through a different insurance company.

MileMeter’s rates become less competitive as a customer adds more miles or coverage. For example, 2,000 miles at the lowest liability level costs $89.60 for six months. The price increases to $326.40 for 6,000 miles.

Expansion plans

MileMeter recently received $2.1 million in bridge financing – interim financing provided until the next major private equity funding – from Compass and company management to hire and expand, Gay said.

Next year, the company plans to offer a mobile application, explore new products and enter California, the largest U.S. auto insurance market, after a law was passed there last year allowing price-per-mile coverage, he said.

So far, State Farm and the Automobile Club of Southern California have filed with California regulators to offer policies under the new law. Their applications are under review.

Gay also is exploring other options, such as other states and talking with multiple insurers to license MileMeter’s technology in new markets.

This summer, MileMeter won a $1.4 million federal grant under a national program to relieve road congestion caused by 250 million cars, including 18 million in Texas. MileMeter will gain $1.25 million in revenue and 6,000 new customers to track under the program, Gay said.

MileMeter still faces expansion barriers, such as funding, increased competition and state regulations, but Gay is undeterred.

“We’ve proven that customers want it and that it’s profitable,” he said. “The industry is trying to play catch-up to where we are now.”