Progressive's "pay-as-you-drive" auto insurance poised for wide rollout
By Joe Frey
Insure.com, Last updated July 18, 2000
Progressive Insurance Corp. introduced a pilot program in Texas in 1998 to determine whether or not auto insurance premiums could be calculated on a pay-as-you-drive basis. The insurer has concluded that pay-as-you-drive auto insurance policies are indeed feasible. Now, Progressive is in the process of coming up with a workable system for rolling out the policies nationwide.
Exactly when Progressive comes up with that system is another question altogether. Leslie Kolleda, a spokesperson for Progressive, says that pay-as-you-drive auto insurance from Progressive will spread into states other than Texas, but her company currently has no plan of attack. "We have no idea when we're going to do it. We have no plan right now," she says.
How pay-as-you-drive works
Progressive tracks with a Global Positioning System (GPS) how much you drive (in miles and minutes, the time at which you drive, and the areas in which you drive in order to calculate your insurance premium. At the end of each month, a cellular phone (which is also part of the bargain) reports to Progressive your driving patterns.
Progressive recently received a patent on its Autograph pay-as-you-drive insurance rating system from the U.S. patent office, signaling that it is poised to begin offering the policies to consumers in many states. Currently, Progressive has discontinued selling new Autograph policies in Texas because the pilot program ended, but it is still servicing existing policies, which Kolleda estimates number in the hundreds.
Progressive piloted the Autograph policy in Texas through Progressive County Mutual Insurance Co. partly because there is almost no regulation of the insurance rates charged by county mutuals in Texas — and the state is loaded with county mutuals. "Even if we saw something we didn't like in their rating, we probably couldn't do anything about it," admits Lee Jones, a spokesperson for the Texas Department of Insurance.
County mutual insurance companies do not have to follow the insurance department's rules when it comes to charging their premiums because historically they sold insurance to consumers that no other insurance company would sell to — high-risk and rural policyholders, for example. As a result, in 1951, the Texas Legislature allowed county mutuals to continue selling without rate regulation. Although challenges to the county mutual format have cropped up from time to time, insurer interests in the Texas Legislature have quashed attempts to reform the system.
However, the Texas Department of Insurance did not find anything suspect in the way Progressive charged its Autograph premiums. According to Kolleda, the department loved the idea of a pay-as-you-drive insurance policy. Kolleda says that other state insurance departments with whom Progressive has discussed its Autograph policies have indicated they would approve the policies, but nothing has yet been formalized.
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"There are certainly people with privacy concerns. This policy is not for those people."
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Snafus
Progressive wants to clear any hurdles that might block the success of the Autograph policies before it begins selling them in other states, says Kolleda. One of the hang-ups Progressive faces in launching Autograph nationwide is a dearth of necessary hardware in cars. Autograph policies require policyholders to install a GPS, a cellular phone, and a vehicle crash-data recorder for their cars. As advanced as autos are, those three items do not come standard on all hot-off-the-assembly-line vehicles. Progressive is looking to partner with an auto manufacturer, such as General Motors, that could put those devices in vehicles because Kolleda notes the installation of the devices was inconvenient for the policyholders in Texas.
What's more, Progressive initially paid for the equipment and the installment of the devices for the Texas policyholders, so finding an auto manufacturer that installs the equipment at the factory will save money for the insurer. Kolleda could not say whether future policyholders would have to purchase their own GPS and cellular phone.
The cost of giving up privacy
According to Progressive's rate filings with the Texas Department of Insurance, each Autograph policyholder is charged a $65 start-up fee that is nonrefundable. In addition, Kolleda says that Texas policyholders were charged a $5 monthly fee for the GPS, cellular phone, and crash-data recorder.
Kolleda notes that Progressive received one complaint about its Autograph policies in Texas. A policyholder was concerned that when he received his monthly bill, Progressive was incorrectly counting the number of minutes he had driven and thus overcharging him. What the policyholder did not know was that Progressive rounds the number of minutes policyholders drive to the nearest number. For example, 5.58 minutes of driving would be rounded to 5.6. Kolleda says the complaint was resolved without dispute.
Kolleda says that while many Texas policyholders raved about the premium savings — an average of 25 percent over "traditional" insurance policies — the Autograph policy was not without its detractors. Privacy advocates have crowed that policyholders could be vulnerable to litigation or law-enforcement penalties if records of their driving patterns fall into the wrong hands. Progressive has vowed to not let its policyholders' driving data out the door.
What's more, Progressive has not discontinued selling its "traditional" auto insurance policies, forcing consumers to purchase a policy that would make them uncomfortable. "There are certainly people with privacy concerns," Kolleda says. "This policy is not for those people."
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Progressive Awarded Second Patent for Usage-Based Auto Insurance Rating System
Mayfield Village, Ohio, July 13, 2000 - The United States Patent Office has awarded Progressive Casualty Insurance Company, a subsidiary of The Progressive Corporation (NYSE:PGR), a second patent for its usage-based auto insurance rating system. This system, known as Autograph, bases consumers’ auto insurance rates, in part, on how much, when and where the vehicle is driven.
Progressive is one of the largest auto insurance companies in the US.
Bob McMillan, Business Development Leader, Progressive, said: “Usage-based auto insurance is rather simple, really. The less you drive, the less you pay. It’s the first-ever auto insurance product that gives consumers control over how much they pay.”
The system bills consumers each month based on vehicle usage. The information is reported back to Progressive using a combination of Global Positioning Satellite (GPS) and cellular technology installed in the vehicle.
The system has been successfully tested in Texas since 1998. There, hundreds of consumers have chosen usage-based auto insurance over a ‘traditional’ auto insurance rating system. In Houston, Autograph has been shown to save consumers an average of 25 percent compared to what they were paying using a traditional auto insurance product.
“Our usage-based approach to auto insurance is producing savings for lots of people,” McMillan said. “In fact, people who live close to work or have a second or third car that isn’t used as much are seeing savings of up to 50 percent on their auto insurance premium.”
“The test proved the usage-based system is feasible from a technology standpoint and consumers liked the control and cost savings,” said McMillan. “We’ve concluded the test to move forward focusing on integrating our systems, forging alliances with companies that can provide technology embedded in the vehicle and obtaining necessary state regulatory approval for a wider rollout.”
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INSURER'S PATENT TARGETS DRIVER'S EVERY MOVE
Privacy Times, November 4, 1999
An Ohio insurance company has patented a system capable of monitoring details about drivers, including how fast they drive, how often they use their breaks, what routes they take, whether they use seat belts, signal before turning or tailgate, and what radio station they listen to.
The system, dubbed "Autograph," was developed by Progressive Insurance so it could base insurance rates on actual driving habits, and offer auto insurance to high-risk customers.
According to the Oct. 25 Cleveland Plain Dealer, Progressive is testing on several hundred Texas drivers a simplified system that tracks how long the vehicle is driven each day and how much time it spends in congested and accident-prone "risk zones."
Bob McMillan, a Progressive marketing executive, said not to be alarmed by the patent's long list of surveillance capabilities, or its mention of marketers' lust for such detailed data about drivers. "We threw in the kitchen sink in the patent" as a protection against competition, he said. Maria Henderson, the company's general counsel, said the patent "describes something we're not currently doing, nor do we contemplate doing."
The Autograph patent describes a system in which an onboard computer and sensors collect a street of driving data. It could determine if a car was breaking the speed limit on a certain street, or driving in a high-risk accident area. The data would be stored in a digitized "driving file." The car's computer would report certain "trigger events," to a central computer via a cell phone link. Such events would include a wreck or breakdown, or actions that would add to the driver's insurance bill, such as speeding, not using seat belts or turn signals, or regularly braking so hard as to activate the anti-lock brakes system.
In Houston, customers sign a contract that discloses what Autograph will monitor. They pay an installation cost that the company won't disclose, plus $1 per month for one car and $15 per month for each additional car. McMillan told the Plain Dealer that consumers like the control they get of their insurance bill; some have improved their driving habits. "The privacy issue is there, but it really disappears as they understand the product."
Privacy advocates point out that the data collected by Autograph is only a subpoena away from law enforcers, employers or opposing lawyers. How soon Progress will offer Autograph nationwide depends on the time it takes to ensure the system works properly, and to compile enough data to satisfy State insurance regulators, officials said.
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Progressive Testing Insurance Rates Based
on
When, Where and How Much One Actually Drives
Progressive Testing New Product in Texas That Features
Revolutionary Auto Insurance Rating Method
AUSTIN, Texas, Oct. 27 - In August 1998, Progressive, one of the largest auto insurers in the U.S., began a limited marketing test in Houston of a new product that bases auto insurance premium in part on when, where and how much a vehicle is driven. The product is called Autograph(SM). In August of 1999, the company expanded the test throughout the state of Texas.
Auto insurance rates are traditionally rated on variables including vehicle age, manufacturer and value, driver's age, sex, marital status, place of residence and driving record and types of coverages and deductibles selected. Auto insurers use this information, along with the company's loss experience on that "class'' of driver and vehicle, to determine a consumer's auto insurance rate. In other words, current rating systems are primarily based on a company's past realized losses, or historical data.
Progressive's new auto insurance product, Autograph, determines a consumer's auto insurance rate based on actual vehicle usage, including when and how much the vehicle is driven. When a consumer decides that Autograph is right for him or her, the consumer and Progressive enter into an agreement that gives the company access to the data and affords the consumer protection as to uses of the data-only the company or the consumer have access to it.
A device the size of a videocassette is then installed in each vehicle. Data regarding when, where and how much the vehicle is driven is collected periodically and reported automatically using cellular communication technology. Progressive sought and has been awarded a patent by the Patent and Trademark Office of the United States Department of Commerce for the method of determining a cost for auto insurance with vehicle usage data.
"Up until now, no one has come up with a more accurate way of determining one's auto insurance premium,'' said Willy Graves, President of Progressive County Mutual of Texas. "Autograph works more like a monthly utility or telephone bill, with the consumer paying by the month based on actual usage rather than on historical data derived from groups of similar people and vehicles. It's simple, really. If you drive less, you pay less.''
Graves said: `"In Houston, for example, consumers using Autograph are paying an average of 25 percent less using Autograph than they paid using a 'traditional' auto insurance product. Houston consumers tell us three things- -they're paying less, they're in control and the system makes sense to them.''
The company continues to offer its traditional auto insurance product everywhere it writes auto insurance. In Texas, however, some consumers who call Progressive will have a choice of auto insurance product that best fits their needs. Autograph may be the best choice for consumers who have more vehicles than drivers in the household, maintain low mileage on their vehicles, or use public transportation or use car pools.
Autograph may also be a good choice for consumers with security concerns. In addition to the auto insurance applications, consumers also enjoy the safety features that the technology provides for a small additional monthly fee including theft recovery, remote door unlocking, roadside assistance, directional assistance, and low battery detection. In addition, the system features a 'panic button' the consumer can use to be put in instant contact with a manned, 24 hour response center.
Graves said: "Our strategy is one of offering consumers choices about their auto insurance. We offer them choices in how, when and where to buy and service their policy. With Autograph, we're expanding Texas consumers' choices to include which auto insurance rating method makes the most sense for them.''
Progressive will continue the market test in Texas and will discuss the products' introduction with state insurance regulators in the year 2000.
Progressive provides consumers throughout the U.S. with competitively priced automobile insurance and in-person, 24-hour services and is the nation's largest writer of automobile insurance through Independent Agents. Progressive companies that write auto insurance receive the highest ratings available from A.M. Best, the independent company that rates the financial condition of insurance companies. The Progressive Corporation's stock is traded on the New York Stock Exchange.
More information about the company can be found on the World Wide Web at: www.progressive.com.