CAS 2004 Spring Meeting
Pay-As-You-Drive
How has mileage been used?
• Vehicle use
– Pleasure
– Farm
– Commute
– Business
– Artisan
• Commute distance
• Annual mileage discount
Specific mileage discounts
• Many companies discount ~10% on major
coverages for <7,500 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
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
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
NHTSA data
Wide dispersion creates opportunity for segmentation
Distribution of Annual Miles
30%
25%
20%
15%
10%
5%
04,
99
5,
9
00
09,
10
99
,0
9
00
-1
4,
15
99
,0
9
00
-1
9,
20
99
,0
9
00
-2
4,
25
99
,0
9
00
-2
9,
30
99
,0
9
00
-3
9,
99
9
40
,0
00
+
0%
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
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”
New problems, new opportunities!
• Tracking mileage in real time
• Reporting mileage to insurer (cellular)
• Billing adjustments (utility)
• Term length (miles instead of months?)
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
Automated approaches
• Progressive – 1997 Autograph study in Texas
Aftermarket GPS and cellular technology
Collected time and place
Computed mileage by time of day and location
Billed 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
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