One of the long-running complaints among people who buy automobile insurance is the way carriers lump drivers together based on general characteristics -- age, sex, where they live and so on -- in setting prices.
These categories are insurers' attempts to predict the riskiness of the drivers they insure. Since they can't evaluate everyone individually, they employ generalizations. Carriers' experience tells them that these generalizations are broadly valid, but they acknowledge that they aren't perfect, and as a result some good drivers pay more than they should and some bad drivers pay less.
Some insurers have turned to other factors, such as credit scores, in an attempt to refine their ratings, triggering even more complaints.
But for about the past 10 years, one large carrier, Ohio-based Progressive Corp., has been trying out technology-based systems that carry risk analysis right down to the actual driver, or at least to the actual car. In the late 1990s in Texas, the company experimented with global positioning devices and cellular telephones mounted onboard consenting customers' cars to monitor when they drove, where they drove and how far they drove.
Now, Progressive is beginning a second round of experimentation. It is offering to provide 5,000 Minnesota customers with gizmos that plug into their cars' onboard diagnostic ports -- which most newer cars have -- and capture data on how far the cars are driven, at what speed and at what time of day. The device also gathers information about rapid acceleration and hard braking, but, lacking a GPS component, it does not record where a car goes.
The goal, as it was in Texas, is to get an exact reading of the driver's behavior. Based on that, Progressive is offering discounts to those who appear to be driving more safely than average. The discounts are based on mileage, speed and time of day, but not on braking and acceleration, which Progressive plans to analyze for "predictive value."
The experiments are "based on our belief that we can use technology in innovative ways to help people save money on their car insurance," said Mark Connally, online marketing manager at Progressive.
And if participants feel inhibited by the fact that their behavior is being recorded -- feeling forced in a way to become safer drivers -- both they and Progressive will benefit, he added.
The Texas experiment, known as Autograph and concluded in 2001, showed that "it is technically feasible to do something around usage-based insurance, and to get real data about the driver and the vehicle from the vehicle itself," Connally said. It also showed that "consumers are pretty enthusiastic about the concept," he said.
But Autograph used expensive technology, for which Progressive charged a fee, and because it sent data automatically to Progressive, it raised some questions about privacy.
The Minnesota round, dubbed TripSense, uses an inexpensive plug-in device that is free to the customer. The customer can remove this matchbox-size TripSensor and download its readings into a personal computer using software provided by the company. The software shows the driver his or her record and what insurance discounts he or she may have qualified for. The customer can choose to send the information along to Progressive via the Internet, or keep it private.
Earlier this year, a pilot program involving 250 drivers in Minnesota, who were paid $25 to plug in one of the devices and upload their data after 30 days, indicated that the test group would have been eligible for 7.5 percent discounts on average, though in the test discounts were not actually given.
The company will continue to use its conventional rating methods, but will offer TripSense participants discounts of up to 25 percent off those prices. All participants will get 5 percent off for the first six months. After that, they will get 5 percent if they send their data along to Progressive, and as much as 20 percent more based on their driving habits.
Progressive officials say they are learning a lot about what makes for safe driving.
"Generally we would say there are three components" to driving risk. "How you drive, when you drive and where you drive," said Dave Huber, TripSense product manager. "With Autograph, we were automatically gathering all three of those," but "our conclusion from Autograph was that where you drive was less predictive. And that was one of the most expensive pieces of data" to gather because it required GPS equipment.
At the same time, TripSense is paying more attention to high speeds. During Autograph, Progressive officials said they hadn't found a strong correlation between exceeding the speed limit and accidents. With the GPS component to record exactly where the car is, TripSense can't tell whether the speed limit for that road is being exceeded; but it is going to keep track of how much time the car spends going faster than 75 mph.
Huber said Progressive isn't weighting speed as much as mileage in computing discounts. "We recognize [speed] is important; we just don't know how important. We are confident it's worth at least 5 percent," he said.
"It's intuitive," Huber said, that when drivers spend an above-average amount of time going more than 75, "they just have to be at a greater risk of an accident."
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