Miami Herald: Farmers Group weighs ‘pay-as-you-drive’ insurance plan

Sep 25, 2009

The Miami Herald published this story on September 25, 2009

BY CAROLYN BANDEL
Bloomberg News

Farmers Group plans to lower premiums by charging drivers for coverage by the mile, measuring car usage by iPhone and BlackBerry.

The insurer wants to base insurance costs on miles driven to “charge the right premium for the right risk” and keep premiums low, Mark Toohey, a spokesman for Farmers, said in a telephone interview. The company is considering offering a tracking product using mobile-phone technology at the end of this year or early in 2010.

Voluntary “pay-as-you-drive” regulations that allow insurers to base premiums on actual miles driven were announced Sept. 3 by the commissioner of the state of California Department of Insurance, Steve Poizner, who is responsible for enforcing insurance-related laws and previously founded SnapTrack, which pioneered technology that put GPS receivers into mobile phones.

“We see some potential in California for using this type of technology because of California’s unique auto-rating regulations, which focus heavily on miles driven,” Toohey said.

TRACKING “Farmers doesn’t support the use of any technology which would require a customer to be tracked.” The company, the U.S. unit of Zurich Financial Services that bought AIG’s auto-insurance business in April, said the option to be tracked would be made available to customers and only used with their agreement. U.S. insurers are regulated separately in each state.

Insurers have been testing technology to offer pay-as-you-drive insurance in countries including the United Kingdom, the United States and the Netherlands. So far, such insurance lets motorists prepay for the miles they expect to drive during the term of coverage, as with Polis Direct in the Netherlands, which is part of the Dutch automotive trade association BOVAG.

`TELEMATICS’ Aviva, the U.K.’s second-biggest insurer by market value, offered a policy that fitted a blackbox tracker device into cars using “telematics” technology to record journeys. The insurer stopped offering the product last year because it “had to bear the cost of the box and the operating model was very costly for Aviva,” Erik Nelson, a Norwich, U.K.-based spokesman, said in a telephone interview.

“We’re looking at various technologies and have set for ourselves an internal deadline for going to market with a usage-based rating option,” Toohey said. “Voluntary tracking measures and technologies may have as much relation or even more relation to accident risk as miles driven. Examples of these risk measures would be car speed, hours of day a customer drives or driving in congested areas.”