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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
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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 dataWide dispersion creates opportunity for segmentation
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 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
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