Actuarial consultant EMB is advising insurers to jump on the telematics bandwagon and give auto insurance customers the option to “pay as they drive,” to paraphrase Progressive Insurance’s patented cliché (Pay As You Drive). “Usage-based insurance will become the industry standard in the next five years,” EMB predicts.

Well, maybe. When Progressive Insurance first put together the technology it failed to result in a successful launch. However, the company licensed the technology to (Aviva-owned) Norwich Union in the U.K., and that carrier did launch a program. Now Progressive has launched its MyRate/Pay As You Drive (PAYD) program, available to drivers in Oregon, Minnesota, Michigan and Alabama (it’s hard to see what that last state fits with the rest, but I’m sure Progressive has a wicked algorithm that proves that it does). Meanwhile, Norwich Union has discontinued its PAYD program.

In the wake of Norwich’s pioneering use of PAYD, conventional wisdom was that Americans were more suspicious about anything smacking of surveillance. Perhaps the British weren’t all that different. Other Commonwealth countries have adopted the approach, including an Aviva program in Canada. And now Progressive is taking its chances in states where perhaps there is less antipathy to what might be perceived as Big Brother-like intrusions into the private space.
EMB’s recommendations are largely focused on the technical issues:

Insurers must develop a method of obtaining data, either through driver self-reporting, existing tools such as OnStar, or new tools such as proprietary hardware that plugs into the on-board diagnostic port (OBD) and uses the car's internal computer to track driving behavior. Then, challenges arise around how to retrieve and store the information, which data matters, and how to develop predictive models that meet customer acceptance and regulatory scrutiny, all while considering the privacy of the customer.

Clearly, the consultancy takes the privacy issue seriously, but it doesn’t allude to any distinctly American attitude about privacy. That was disappointing because the first thing I wondered when I heard EMB’s prediction was whether they would comment on the cultural issue. I don’t have any information about other PAYD programs in Britain, or in Canada and South Africa.

However, the failure of Norwich’s program resurrects the question of cultural barriers to PAYD programs. News reports say that Norwich claimed that consumer demand was affected by a slow uptake on the part of automobile makers. The suggestion is that pricing included installation charges for the "black box" that records the telematic information; if cars came ready made with the capability, costs would be lower and not tied directly to premium. Assuming that factor affected demand for Norwich's product, it still may not reflect the whole picture.

Many social commentators claim that technology has already killed privacy and we just haven’t noticed yet. As we begin to notice, will we be ready for PAYD? Will tough economic times push careful drivers over the PAYD edge? Will parents wanting to monitor their teen drivers be the thin end of the wedge? Or will Americans (and others) continue to resist intrusions to their privacy? Or—another possibility—will hackers find a fraud greenfield in PAYD and similar programs, making those programs less attractive to the insurers?

It will be interesting to see how EMB’s prediction plays out. Wagers?

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