View source for Usage-based insurance

{{short description|Type of vehicle insurance}}
'''Usage-based insurance''' ('''UBI'''), also known as '''pay as you drive''' ('''PAYD'''), '''pay how you drive''' ('''PHYD''') and '''mile-based auto insurance''', is a type of [[vehicle insurance]] whereby the costs are dependent upon type of <ref>{{Cite journal |last=Handel |first=Peter |last2=Skog |first2=Isaac |last3=Wahlstrom |first3=Johan |last4=Bonawiede |first4=Farid |last5=Welch |first5=Richard |last6=Ohlsson |first6=Jens |last7=Ohlsson |first7=Martin |date=Winter 2014 |title=Insurance Telematics: Opportunities and Challenges with the Smartphone Solution |url=http://ieeexplore.ieee.org/document/6936433/ |journal=IEEE Intelligent Transportation Systems Magazine |volume=6 |issue=4 |pages=57–70 |doi=10.1109/MITS.2014.2343262 |issn=1939-1390|url-access=subscription }}</ref>vehicle used, measured against time, distance, behavior and place.

This differs from traditional insurance, which attempts to differentiate and reward "safe" drivers, giving them lower premiums and/or a no-claims bonus. However, conventional differentiation is a reflection of history rather than present patterns of behaviour. This means that it may take a long time before safer (or more reckless) patterns of driving and changes in lifestyle feed through into premiums.

== Concept ==
The simplest form of usage-based insurance bases the insurance costs simply on distance driven. However, the general concept of ''pay as you drive'' includes any scheme where the insurance costs may depend not just on how much you drive but how, where, and when one drives.<ref name=naic>{{cite web|title=Usage-Based Insurance and Telematics|url=http://www.naic.org/cipr_topics/topic_usage_based_insurance.htm|publisher=[[National Association of Insurance Commissioners]]|access-date=22 February 2014}}</ref>

Pay as you drive (PAYD) means that the insurance premium is calculated dynamically, typically according to the amount driven. There are three types of usage-based insurance:
# Coverage is based on the [[odometer]] reading of the vehicle.
# Coverage is based on mileage aggregated from GPS data, or the number of minutes the vehicle is being used as recorded by a vehicle-independent module transmitting data via [[Mobile phone|cellphone]] or [[RF connector|RF]] technology.<ref name = "Paefgen et al.">[http://aisel.aisnet.org/icis2012/proceedings/ISSecurity/6/ J. Paefgen, T. Staake & F. Thiesse, "Resolving the Misalignment between Consumer Privacy Concerns and Ubiquitous IS Design: The Case of Usage-based Insurance", International Conference on Information Systems (ICIS), 2012]</ref>
# Coverage is based on other data collected from the vehicle, including speed and time-of-day information, historic riskiness of the road, driving actions in addition to distance or time travelled.

The formula can be a simple function of the number of miles driven, or can vary according to the type of driving or the identity of the driver. Once the basic scheme is in place, it is possible to add further details, such as an extra risk premium if someone drives too long without a break, uses their mobile phone while driving, or travels at an excessive speed.

[[Telematics|Telematic]] usage-based insurance (i.e. the latter two types, in which vehicle information is automatically transmitted to the system) provides a much more immediate feedback loop to the driver,<ref name=naic/> by changing the cost of insurance dynamically with a change of risk. This means drivers have a stronger incentive to adopt safer practices. For example, if a commuter switches to public transport or to working at home, this immediately reduces the risk of rush hour accidents. With usage-based insurance, this reduction would be immediately reflected in the cost of car insurance for that month.{{citation needed|date=September 2023}}

The smartphone as measurement probe for insurance telematics has been surveyed<ref>{{Cite journal |last=Handel |first=Peter |last2=Skog |first2=Isaac |last3=Wahlstrom |first3=Johan |last4=Bonawiede |first4=Farid |last5=Welch |first5=Richard |last6=Ohlsson |first6=Jens |last7=Ohlsson |first7=Martin |date=Winter 2014 |title=Insurance Telematics: Opportunities and Challenges with the Smartphone Solution |url=http://ieeexplore.ieee.org/document/6936433/ |journal=IEEE Intelligent Transportation Systems Magazine |volume=6 |issue=4 |pages=57–70 |doi=10.1109/MITS.2014.2343262 |issn=1939-1390|url-access=subscription }}</ref>

Another form of usage-based insurance is PHYD (Pay How You Drive). Similar to PAYD, but also brings in additional sensors like [[accelerometer]] to monitor driving behavior.<ref name = "EY PHYD">[http://www.ey.com/Publication/vwLUAssets/ey-introducing-pay-how-you-drive-insurance/$FILE/ey-introducing-pay-how-you-drive-insurance.pdf "Introducing ‘Pay How You Drive’ (PHYD) Insurance Insurance that rewards safe driving, 2016]</ref>

== Potential benefits ==
{{More citations needed section|date=August 2018}}
* Social and environmental benefits from more responsible and less unnecessary driving.{{According to whom|date=August 2018}}
* Commercial benefits to the insurance company from better alignment of insurance with actual risk.{{Citation needed|date=August 2018}}  Improved customer segmentation.
* Potential cost-savings for responsible customers.{{weasel inline|text=Potential|date=August 2018}}{{Citation needed|date=August 2018}}
* Technology that powers UBI/PAYD enables other vehicle-to-infrastructure solutions{{buzzword inline|date=September 2019}} including drive-through payments, emergency road assistance, etc.{{Citation needed|date=August 2018}}
* More choice for consumers on type of car insurance available to buy.{{According to whom|date=August 2018}}
* Social benefits from accessibility to affordable insurance for young drivers - rather than paying for irresponsible peers, with this type of insurance young drivers pay for how they drive.{{Citation needed|date=August 2018}}
* Higher-risk drivers pay most per use, thus have highest incentive to change driving patterns or get off the roads, leaving roads more safe.<ref>http://www.advocatedaily.com/areas-of-law/usage-based-car-insurance-as-refined-discrimination.html{{full citation needed|date=August 2016}}</ref><ref name="dijksterhuis">{{cite journal |last1=Dijksterhuis |first1=Chris |last2=Lewis-Evans |first2=Ben |last3=Jelijs |first3=Bart |last4=Tucha |first4=Oliver |last5=de Waard |first5=Dick |last6=Brookhuis |first6=Karel |title=In-car usage-based insurance feedback strategies. A comparative driving simulator study |journal=Ergonomics |volume= 59|issue= 9|pages=1–13 |year=2016 |pmid=26653393 |doi=10.1080/00140139.2015.1127428 |doi-access=free }}</ref>{{Failed verification|reason=source uses weasel words, source cites a simulation not real world study, source is unable to claim a clear conclusion to the experiment results|date=August 2018}}
* For telematic usage-based insurance: Continuous [[GPS tracking unit|tracking of vehicle location]] enhances both personal security and vehicle security.{{dubious|date=August 2018}} The [[global positioning system|GPS]] technology could be used to trace the vehicle whereabouts following an accident, breakdown or theft.{{weasel inline|text=could|date=August 2018}}<ref name = "Iqbal"/>{{Better source needed|reason=The technology claims to aid locating the vehicle which is an after-the-fact benefit, not to provide security which is a preventative, before-the-fact, concept|date=August 2018}}
* The same GPS technology can often be used to provide other (non insurance) benefits to consumers, e.g. satellite navigation.<ref name="Iqbal">[http://www.gmat.unsw.edu.au/snap/publications/usman&lim2006a.pdf Iqbal & Lim, "A Privacy Preserving GPS-based Pay-as-You-Drive Insurance Scheme", International Global Navigation Systems Society, 2006] {{webarchive|url=https://web.archive.org/web/20080812051724/http://www.gmat.unsw.edu.au/snap/publications/usman%26lim2006a.pdf |date=2008-08-12 }}</ref>{{Better source needed|reason=source has apparent conflict of interest due to financial backing, source presents a hypothetical system, not an actual proven system|date=August 2018}}
* [[Gamification]] of the data encourages good driver behavior by comparison with other drivers.<ref name="dijksterhuis" />{{Better source needed|reason=source fails to reach a clear conclusion, claim goes against other published research: Speed display signs may encourage speeding by those who wish to test it, the source fails to take into consideration those drivers who may use the gamification of the data into the opposite effect (who can drive the fastest)|date=August 2018}}

== Potential drawbacks ==
* There are limits to the ability of any insurance system to predict future risk, including usage-based insurance. Some lower-risk drivers will still subsidize some higher-risk drivers, to some extent.
* For usage pricing, driving habits must be documented, raising [[privacy]] concerns especially in the case of systems which use continuous GPS tracking of vehicles.<ref name = "Paefgen et al."/><ref>{{cite magazine| url=https://www.wired.com/autopia/2011/08/insurance-company-telematics-trade-perks-for-privacy/ | magazine=Wired | first=Keith | last=Barry | title=Insurance Company Telematics Trade Perks for Privacy | date=August 19, 2011}}</ref> Personal information such as where you drive may also be inferred using only data such as speed and distance driven.<ref>Threat to Privacy Found in Auto Insurance 'Pay as You Drive' Programs, https://www.sciencedaily.com/releases/2013/09/130910165316.htm</ref><ref name="Dewri et al.">[http://www.cs.du.edu/~rdewri/data/MyPapers/Conferences/2013WPES-Extended.pdf Inferring Trip Destinations from Driving Habits Data] by Dewri et al. (ACM Workshop on Privacy in the Electronic Society 2013)</ref>
* Pricing plans based on behavior may be harder to compare between insurance companies, making it more difficult for consumers to price shop and reducing competition.

== Patents ==
<!-- Deleted image removed: [[Image:Aioi patent.JPG|thumb|300 px|Telematics Insurance System from AIOI patent application WO 2005/083605]] -->There are several issued [[patent]]s<ref>[http://www.bakosenterprises.com/IP/B-10152004/IPB-10152004.html Nowotarski, Mark, "Progressive Builds a Fortress of Patent Protection", Insurance IP Bulletin, October 15, 2004]</ref>  and pending [[patent application]]s that have been filed worldwide on various inventions related to telematic auto insurance.  These include:

*{{Cite patent|country=EP|number=0700009}} "Individual evaluation system for motorcar risk"
*{{Cite patent|country=US|number=5797134}} "Motor vehicle monitoring system for determining a cost of insurance" Progressive auto insurance
*{{Cite patent|country=EP|number=2803046}} "Reporting of meter indication " [http://www.movelo.se/ Movelo]
*{{Cite patent|country=EP|number=2812871A1}} "Determination of activity rate of portable electronic equipment" [http://www.movelo.se/ Movelo]
*{{Cite patent|country=JP|number=2002259708|status=application}} "Vehicular Insurance Bill Calculating System, On-Vehicle Device, and Server Device", [[Toyota]]
*{{cite patent|country=WO|number=2005083605|status=application}} "Insurance Fee Calculation Device, Insurance Fee Calculation Program, Insurance Fee Calculation Method, and Insurance Fee Calculation System", [[AIOI Insurance Company]].

In order to make sure that patents did not hinder its Pay as You Drive development program, Norwich Union purchased the UK version of EP0700009 and obtained an exclusive license to any EU patents that may emerge from Progressive's EU patent applications.{{citation needed|date=August 2016}}

In June 2010, [[Progressive Auto Insurance]] filed a patent infringement lawsuit against [[Liberty Mutual]] over one of Progressive's Pay As You Drive auto insurance patents.<ref>[http://www.cleveland.com/business/index.ssf/2010/06/progressive_files_suit_against.html Shaheen Samavati "Progressive files suit against Liberty Mutual", The Plain Dealer, June 21, 2010]</ref>

In September 2010 [[Progressive Auto Insurance]] filed a [[declaratory judgment]] lawsuit against Hughes Telematics to have several its patents covering [[OBDII]] mounted wireless data loggers declared invalid.  Progressive uses these devices from a competitive supplier, [[Xirgo Technologies]].<ref>[http://www.bakosenterprises.com/IP/IPB.html  Patent Q&A Declaratory Judgment, Insurance IP Bulletin, October 2010]</ref>

== Impaired driving ==
Telematics have been proposed or utilised in order to detect [[distracted driving]]. The use of telematics to detect [[drunk driving]] and [[Texting while driving]] has been proposed.<ref>{{usurped|1=[https://web.archive.org/web/20090920120406/http://www.marketsandpatents.com/pdfs/stamford_advocate_sober_teen.pdf Harold Davis "’Black Box’ idea travels to cars", The News-Times, 5/22/09]}}</ref>  A US patent application combining this technology with a usage based insurance product was open for public comment on [[peer to patent]].<ref>[http://www.peertopatent.org/patent/20090063201/activity US patent application 20090063201 "SoberTeen driving insurance"] {{webarchive|url=https://web.archive.org/web/20100618063009/http://www.peertopatent.org/patent/20090063201/activity |date=2010-06-18 }}</ref>

== References ==
{{reflist|2}}

== External links ==
* [https://web.archive.org/web/20061007135551/http://www.environmentaldefense.org/article.cfm?contentid=2205 "Drive Less, Pay Less for Insurance"] Environmental Defense Fund (Nov. 12, 2008)
* [http://www.vtpi.org/tdm/tdm79.htm  Pay-As-You-Drive Vehicle Insurance] advocacy organisation (British Columbia, Canada)
* [http://news.bbc.co.uk/1/hi/business/5408338.stm "Insurer launches per-mile cover"] BBC News Report (October 5, 2006)
* [http://news.bbc.co.uk/1/hi/uk_politics/6160877.stm "Motorists 'must pay for road use'] BBC News Report (December 1, 2006)
* [http://www.nctcog.org/trans/air/programs/payd/index.asp Texas Driving Research Study]
* [https://web.archive.org/web/20080724185050/http://www.elecdesign.com/Articles/ArticleID/8663/8663.html Big Brother in the Back Seat, Electronic Design Magazine, Sept. 06, 2004]
* [https://www.cosic.esat.kuleuven.be/publications/private/article-944.pdf PriPAYD: Privacy Friendly Pay-As-You-Drive]{{dead link|date=March 2018 |bot=InternetArchiveBot |fix-attempted=yes }} by Troncoso et al. (Workshop on Privacy in the Electronic Society 2007)
* [http://www.rff.org/documents/RFF-DP-98-13-REV.pdf Pay at the Pump]
* [https://www.economist.com/news/finance-and-economics/21572237-gizmos-track-driving-habits-are-changing-face-car-insurance-hows-my The Economist (February 23, 2013)]
* [http://www.ptolemus.com/blog/usage-based-insurance-set-for-the-mainstream/ UBI set for the mainstream? (February 26, 2013)]

{{DEFAULTSORT:Usage Based Insurance}}
[[Category:Vehicle insurance]]
[[Category:Transport economics]]