Pay-As-You-Drive insurance: global market overview

SBD talks about current developments and trends in Pay As You Drive (PAYD) insurance worldwide:

There is currently a high level of interest in PAYD insurance as the California Insurance Commissioner has proposed the implementation of government regulations supporting insurance charges based on the distance driven. Progressive Insurance is pushing ahead with its roll-out of PAYD services in the US. Progressive’s MyRate service is now available in 15 states with Colorado set to join this summer.

Many PAYD insurance systems are based on the same core technology as in-vehicle telematics devices: GPS positioning and mobile phone communications. Some vehicle manufacturers, such as Fiat, are beginning to offer PAYD insurance services as one of a suite of applications available through their OE telematics systems.

Although PAYD insurance has been trialled and deployed in many countries, it has not yet achieved significant success. The market will remain a niche if it continues to be offered as a standalone service. Piggy-backing on automotive telematics systems is the key to reducing system and installation costs to gain widespread deployment.

PAYD insurance schemes have been implemented across Europe, North America, Asia, Middle East and Africa. However, many of these schemes have been short-lived demonstrations or limited to specific consumer groups such as young drivers.

Italy is currently leading the way for PAYD insurance. MetaSystem’s Octo Telematics division claims to have 800,000 customers for its PAYD insurance services. One of the secrets of Octo’s success is its cooperation with Fiat and Magneti Marelli. Octo Telematics acts as a middle-man collecting and processing the vehicle usage data from Fiat’s Blue&Me in-car telematics hardware and providing it to insurance companies.

The roots of Italy’s success in deploying PAYD insurance lie in the widespread use of stolen vehicle tracking services. Consumers understand the concept of receiving discounts in the insurance fees if they fit a tracking system. This concept is being expanded to include distance driven monitoring in addition to the stolen vehicle tracking.

Data privacy issues have delayed the markets in France, Germany and Spain. Consumers in these countries are uneasy about the concept of having Big Brother monitoring when and where they drive.

Another barrier to success is the confusion perceived by many customers encountering PAYD insurance. Consumers express concern about the uncertainty generated by PAYD. Not knowing how much they will be charged each month is not popular with some consumers and insurance companies need to overcome this concern through their marketing activities.

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