CAS 2004 Spring Meeting

1
CAS 2004 Spring Meeting

• Pay-As-You-Drive

2
How has mileage been used?

• Vehicle use
• Pleasure
• Farm
• Commute
• Business
• Artisan
• Commute distance
• Annual mileage discount

3
Specific mileage discounts

• Many companies discount 10 on major coverages
  for lt7,500 or 8,500 annual miles
• Some provide a second break point for a lesser
  discount at 12,500 miles annually.
• Several companies build use, commute distance and
  annual mileage into driver class

4
Regulatory Encouragement

• California Prop 103 requires use of mileage in
  rating as a major determinant
• Results in surcharges for higher annual mileage
• Specific regulations in some states provide for
  pay-as-you-drive (TX, OR)
• Many Providences in Canada have encouraged more
  mileage rating experimentation

5
Considerations

• When using vehicle use and mileage
• Correlation in the rate order may exist
• Likely to be correlation between mileage and
  several other variables
• Age
• Territory (rural Vs urban)
• Multi-car

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NHTSA dataWide dispersion creates opportunity
for segmentation
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Issues with mileage

• Vehicle use is only a proxy for mileage
• Self reported and unverified
• Verified mileage a hassle to collect
• Automated collection expensive
• Actual mileage not linked to loss data
• Type of mileage may be as important as magnitude

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What else could be done?

• Usage based insurance
• Change rates for subsequent terms based on actual
  mileage in prior term
• Bill rates in current term based on actual
  current mileage Pay-as-you-drive

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New problems, new opportunities!

• Tracking mileage in real time
• Reporting mileage to insurer (cellular)
• Billing adjustments (utility)
• Term length (miles instead of months?)

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Commute Mileage Verifiable

• Progressive MN commute mileage verified by
  calculating distance from center of home and work
  zip codes
• Several vendors have software to calculate
  mileage between specific addresses
• Publicly available software on the Internet can
  be licensed for commercial use

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Automated approaches

• Progressive 1997 Autograph study in
  TexasAftermarket GPS and cellular
  technologyCollected time and placeComputed
  mileage by time of day and locationBilled for
  usage monthly
• Erie County NY 1998 GPS cell phone for
  emergency dispatch
• Norwich Union 2002 Licensed Autograph patents
  and markets pay-as-you-drive in UK

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Automated approaches

• GMAC 2004 OnStar discount uses factory
  installed product to track mileage and provides
  range of discounts in subsequent term for imputed
  annual mileage up to 15,000.
• Addresses primary issue of cost
• Factory installed device
• Exists for purpose besides insurance