Progressive Insurance Corp. introduced a pilot program in Texas in 1998 to determine whether or not auto insurance premiums
could be calculated on a pay-as-you-drive basis. The insurer has
concluded that pay-as-you-drive auto insurance policies are indeed
feasible. Now, Progressive is in the process of coming up with a
workable system for rolling out the policies nationwide. Exactly when Progressive comes up with that system is
another question altogether. Leslie Kolleda, a spokesperson for
Progressive, says that pay-as-you-drive car insurance
from Progressive will spread into states other than Texas, but her
company currently has no plan of attack. "We have no idea when we're
going to do it. We have no plan right now," she says.
Progressive
tracks with a Global Positioning System (GPS) how much you drive (in
miles and minutes), the time at which you drive, and the areas in which
you drive in order to calculate your insurance premium. At the end of
each month, a cellular phone (which is also part of the bargain)
reports to Progressive your driving patterns.
Progressive recently received a patent on its Autograph
pay-as-you-drive insurance rating system from the U.S. patent office,
signaling that it is poised to begin offering the policies to consumers
in many states. Currently, Progressive has discontinued selling new
Autograph policies in Texas because the pilot program ended, but it is
still servicing existing policies, which Kolleda estimates number in
the hundreds. Progressive piloted the Autograph policy in Texas through
Progressive County Mutual Insurance Co. partly because there is almost
no regulation of the insurance rates charged by county mutuals in Texas
— and the state is loaded with county mutuals. "Even if we saw
something we didn't like in their rating, we probably couldn't do
anything about it," admits Lee Jones, a spokesperson for the Texas
Department of Insurance. County mutual insurance companies do not have to follow
the insurance department's rules when it comes to charging their
premiums because historically they sold insurance to consumers that no
other insurance company would sell to — high-risk and rural
policyholders, for example. As a result, in 1951, the Texas Legislature
allowed county mutuals to continue selling without rate regulation.
Although challenges to the county mutual format have cropped up from
time to time, insurer interests in the Texas Legislature have quashed
attempts to reform the system. However, the Texas Department of Insurance did not find
anything suspect in the way Progressive charged its Autograph premiums.
According to Kolleda, the department loved the idea of a
pay-as-you-drive insurance policy. Kolleda says that other state
insurance departments with whom Progressive has discussed its Autograph
policies have indicated they would approve the policies, but nothing
has yet been formalized.
| "There are certainly people with privacy concerns. This policy is not for those people." |
Progressive wants to clear any hurdles that might block the success of
the Autograph policies before it begins selling them in other states,
says Kolleda. One of the hang-ups Progressive faces in launching
Autograph nationwide is a dearth of necessary hardware in cars.
Autograph policies require policyholders to install a GPS, a cellular
phone, and a vehicle crash-data recorder for their cars. As advanced as
autos are, those three items do not come standard on all
hot-off-the-assembly-line vehicles. Progressive is looking to partner
with an auto manufacturer, such as General Motors, that could put those
devices in vehicles because Kolleda notes the installation of the
devices was inconvenient for the policyholders in Texas.
What's
more, Progressive initially paid for the equipment and the installment
of the devices for the Texas policyholders, so finding an auto
manufacturer that installs the equipment at the factory will save money
for the insurer. Kolleda could not say whether future policyholders
would have to purchase their own GPS and cellular phone.
According
to Progressive's rate filings with the Texas Department of Insurance,
each Autograph policyholder is charged a $65 start-up fee that is
nonrefundable. In addition, Kolleda says that Texas policyholders were
charged a $5 monthly fee for the GPS, cellular phone, and crash-data
recorder.
Kolleda notes that Progressive received one complaint
about its Autograph policies in Texas. A policyholder was concerned
that when he received his monthly bill, Progressive was incorrectly
counting the number of minutes he had driven and thus overcharging him.
What the policyholder did not know was that Progressive rounds the
number of minutes policyholders drive to the nearest number. For
example, 5.58 minutes of driving would be rounded to 5.6. Kolleda says
the complaint was resolved without dispute. Kolleda says that while many Texas policyholders raved
about the premium savings — an average of 25 percent over "traditional"
insurance policies — the Autograph policy was not without its
detractors. Privacy advocates have crowed that policyholders could be
vulnerable to litigation or law-enforcement penalties if records of
their driving patterns fall into the wrong hands. Progressive has vowed
to not let its policyholders' driving data out the door. What's more, Progressive has not discontinued selling its
"traditional" auto insurance policies, forcing consumers to purchase a
policy that would make them uncomfortable. "There are certainly people
with privacy concerns," Kolleda says. "This policy is not for those
people."
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