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Usage-based insurance (UBI), also known as pay as you drive (PAYD), pay how you drive (PHYD) and mile-based auto insurance, is a type of
vehicle insurance Vehicle insurance (also known as car insurance, motor insurance, or auto insurance) is insurance for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage or bodily injury ...
whereby the costs are dependent upon type of vehicle used, measured against time, distance, behavior and place. This differs from traditional insurance, which attempts to differentiate and reward "safe" drivers, giving them lower premiums and/or a no-claims bonus. However, conventional differentiation is a reflection of history rather than present patterns of behaviour. This means that it may take a long time before safer (or more reckless) patterns of driving and changes in lifestyle feed through into premiums.


Concept

The simplest form of usage-based insurance bases the insurance costs simply on distance driven. However, the general concept of ''pay as you drive'' includes any scheme where the insurance costs may depend not just on how much you drive but how, where, and when one drives. Pay as you drive (PAYD) means that the insurance premium is calculated dynamically, typically according to the amount driven. There are three types of usage-based insurance: # Coverage is based on the odometer reading of the vehicle. # Coverage is based on mileage aggregated from GPS data, or the number of minutes the vehicle is being used as recorded by a vehicle-independent module transmitting data via
cellphone A mobile phone, cellular phone, cell phone, cellphone, handphone, hand phone or pocket phone, sometimes shortened to simply mobile, cell, or just phone, is a portable telephone that can make and receive calls over a radio frequency link whi ...
or RF technology.J. Paefgen, T. Staake & F. Thiesse, "Resolving the Misalignment between Consumer Privacy Concerns and Ubiquitous IS Design: The Case of Usage-based Insurance", International Conference on Information Systems (ICIS), 2012
/ref> # Coverage is based on other data collected from the vehicle, including speed and time-of-day information, historic riskiness of the road, driving actions in addition to distance or time travelled. The formula can be a simple function of the number of miles driven, or can vary according to the type of driving or the identity of the driver. Once the basic scheme is in place, it is possible to add further details, such as an extra risk premium if someone drives too long without a break, uses their mobile phone while driving, or travels at an excessive speed.
Telematic Telematics is an interdisciplinary field encompassing telecommunications, vehicular technologies (road transport, road safety, etc.), electrical engineering (sensors, instrumentation, wireless communications, etc.), and computer science (multimedia ...
usage-based insurance (i.e. the latter two types, in which vehicle information is automatically transmitted to the system) provides a much more immediate feedback loop to the driver, by changing the cost of insurance dynamically with a change of risk. This means drivers have a stronger incentive to adopt safer practices. For example, if a commuter switches to public transport or to working at home, this immediately reduces the risk of rush hour accidents. With usage-based insurance, this reduction would be immediately reflected in the cost of car insurance for that month. The smartphone as measurement probe for insurance telematics has been surveyed Another form of usage-based insurance is PHYD (Pay How You Drive). Similar to PAYD, but also brings in additional sensors like
accelerometer An accelerometer is a tool that measures proper acceleration. Proper acceleration is the acceleration (the rate of change of velocity) of a body in its own instantaneous rest frame; this is different from coordinate acceleration, which is acc ...
to monitor driving behavior."Introducing ‘Pay How You Drive’ (PHYD) Insurance Insurance that rewards safe driving, 2016
/ref>


Potential benefits

* Social and environmental benefits from more responsible and less unnecessary driving. * Commercial benefits to the insurance company from better alignment of insurance with actual risk. Improved customer segmentation. * Potential cost-savings for responsible customers. * Technology that powers UBI/PAYD enables other vehicle-to-infrastructure solutions including drive-through payments, emergency road assistance, etc. * More choice for consumers on type of car insurance available to buy. * Social benefits from accessibility to affordable insurance for young drivers - rather than paying for irresponsible peers, with this type of insurance young drivers pay for how they drive. * Higher-risk drivers pay most per use, thus have highest incentive to change driving patterns or get off the roads, leaving roads more safe. * For telematic usage-based insurance: Continuous tracking of vehicle location enhances both personal security and vehicle security. The
GPS The Global Positioning System (GPS), originally Navstar GPS, is a satellite-based radionavigation system owned by the United States government and operated by the United States Space Force. It is one of the global navigation satellite sy ...
technology could be used to trace the vehicle whereabouts following an accident, breakdown or theft. * The same GPS technology can often be used to provide other (non insurance) benefits to consumers, e.g. satellite navigation.Iqbal & Lim, "A Privacy Preserving GPS-based Pay-as-You-Drive Insurance Scheme", International Global Navigation Systems Society, 2006
*
Gamification Gamification is the strategic attempt to enhance systems, services, organizations, and activities by creating similar experiences to those experienced when playing games in order to motivate and engage users. This is generally accomplished thro ...
of the data encourages good driver behavior by comparison with other drivers.


Potential drawbacks

* There are limits to the ability of any insurance system to predict future risk, including usage-based insurance. Some lower-risk drivers will still subsidize some higher-risk drivers, to some extent. * For usage pricing, driving habits must be documented, raising privacy concerns especially in the case of systems which use continuous GPS tracking of vehicles. Personal information such as where you drive may also be inferred using only data such as speed and distance driven.Inferring Trip Destinations from Driving Habits Data
by Dewri et al. (ACM Workshop on Privacy in the Electronic Society 2013)
* Pricing plans based on behavior may be harder to compare between insurance companies, making it more difficult for consumers to price shop and reducing competition.


Patents

There are several issued
patent A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an enabling disclosure of the invention."A ...
s and pending
patent application A patent application is a request pending at a patent office for the grant of a patent for an invention described in the patent specification and a set of one or more claims stated in a formal document, including necessary official forms and re ...
s that have been filed worldwide on various inventions related to telematic auto insurance. These include: * "Individual evaluation system for motorcar risk" * "Motor vehicle monitoring system for determining a cost of insurance" Progressive auto insurance * "Reporting of meter indication
Movelo
* "Determination of activity rate of portable electronic equipment
Movelo
* "Vehicular Insurance Bill Calculating System, On-Vehicle Device, and Server Device",
Toyota is a Japanese multinational automotive manufacturer headquartered in Toyota City, Aichi, Japan. It was founded by Kiichiro Toyoda and incorporated on . Toyota is one of the largest automobile manufacturers in the world, producing about 10 ...
* "Insurance Fee Calculation Device, Insurance Fee Calculation Program, Insurance Fee Calculation Method, and Insurance Fee Calculation System",
AIOI Insurance Company Aioi (相生) is a Japanese surname that has also been used as a place name. Places Aioi may refer to the following places in Japan: * Aioi, Tokushima (相生町 Aioi-chō), the former name of a town located in Naka District, Tokushima * Aioi, Hy ...
. In order to make sure that patents did not hinder its Pay as You Drive development program, Norwich Union purchased the UK version of EP0700009 and obtained an exclusive license to any EU patents that may emerge from Progressive's EU patent applications. In June 2010,
Progressive Auto Insurance The Progressive Corporation is an American insurance company, the third largest insurance carrier and the No. 1 commercial auto insurer in the United States. The company was co-founded in 1937 by Jack Green and Joseph M. Lewis, and is headquar ...
filed a patent infringement lawsuit against
Liberty Mutual Liberty Mutual Group is an American diversified global insurer and the sixth-largest property and casualty insurer in the United States. It ranks 71st on the Fortune 100 list of largest corporations in the United States based on 2020 revenue. B ...
over one of Progressive’s Pay As You Drive auto insurance patents. In September 2010
Progressive Auto Insurance The Progressive Corporation is an American insurance company, the third largest insurance carrier and the No. 1 commercial auto insurer in the United States. The company was co-founded in 1937 by Jack Green and Joseph M. Lewis, and is headquar ...
filed a
declaratory judgment A declaratory judgment, also called a declaration, is the legal determination of a court that resolves legal uncertainty for the litigants. It is a form of legally binding preventive by which a party involved in an actual or possible legal ma ...
lawsuit against Hughes Telematics to have several its patents covering
OBDII On-board diagnostics (OBD) is a term referring to a vehicle's self-diagnostic and reporting capability. OBD systems give the vehicle owner or repair technician access to the status of the various vehicle sub-systems. The amount of diagnostic inf ...
mounted wireless data loggers declared invalid. Progressive uses these devices from a competitive supplier, Xirgo Technologies.


Impaired driving

Telematics have been proposed or utilised in order to detect
distracted driving Distracted driving is the act of driving while engaging in other activities which distract the driver's attention away from the road. Distractions are shown to compromise the safety of the driver, passengers, pedestrians, and people in other vehic ...
. The use of telematics to detect drunk driving and
Texting while driving Texting while driving, also called texting and driving, is the act of composing, sending, or reading text messages on a mobile phone while operating a motor vehicle. Texting while driving is considered extremely dangerous by many people, inclu ...
has been proposed. A US patent application combining this technology with a usage based insurance product was open for public comment on
peer to patent The Peer To Patent project is an initiative that seeks to assist patent offices in improving patent quality by gathering public input in a structured, productive manner. Peer To Patent is the first social-software project directly linked to decisio ...
.US patent application 20090063201 "SoberTeen driving insurance"


References


External links


"Drive Less, Pay Less for Insurance"
Environmental Defense Fund (Nov. 12, 2008)

advocacy organisation (British Columbia, Canada)
"Insurer launches per-mile cover"
BBC News Report (October 5, 2006)
"Motorists 'must pay for road use'
BBC News Report (December 1, 2006)
Texas Driving Research Study


* ttps://www.cosic.esat.kuleuven.be/publications/private/article-944.pdf PriPAYD: Privacy Friendly Pay-As-You-Driveby Troncoso et al. (Workshop on Privacy in the Electronic Society 2007)
Pay at the Pump

The Economist (February 23, 2013)

UBI set for the mainstream? (February 26, 2013)
{{DEFAULTSORT:Usage Based Insurance Vehicle insurance Transport economics