April 10, 2001
Pay-per-minute automobile insurance — a new approach that a major U.S. insurance company has tested in the Texas market — is a hit with consumers. On average, the hundreds of Houston-area drivers who signed up are saving 25%, and some — those who don’t drive much, or who are insuring a lightly driven second or third car — are saving up to 50% over what they had been paying for traditional automobile insurance.
But the benefits of this new, high-tech insurance system — which uses satellite technology to track the time a car travels, plus the accident rating of the roads at the time it travels — aren’t limited to the extra dollars in its customers’ pockets.
Autograph, as the system is called, is a far-reaching technology that could dramatically boost public transit use, discourage urban sprawl, profoundly influence where people live, and begin to tame the worst excesses of the private automobile.
None of this will happen overnight. Autograph’s owner, Progressive Casualty Insurance Company, America’s fourth largest auto insurer, first needs to obtain regulatory approvals, a lengthy process that typically requires clearing all new programs and all rates charged with state authorities. It will also need to arrange for General Motors, Ford and other car manufacturers to offer Autograph technology in new vehicles as an option — such negotiations are now underway — to allow the technology to be pre-installed. If each Autograph policyholder requires a cumbersome, after-the-fact installation, as was done for the Texas pilot program, the impressive savings won’t materialize.
Once these hurdles are overcome, look for sweeping changes in transportation patterns, as the enormous inefficiencies in traditional automobile insurance lead to its overhaul. In traditional insurance, customers who drive little, and along safe routes, are inadvertently overcharged while those who drive a great deal, or in riskier circumstances, pay less than they cost the insurance company. In effect, the low-risk drivers subsidize those who cost the insurer a great deal. Autograph ends much of this subsidy by more accurately assessing its customers’ driving habits, and then passing the savings on to its low-cost customers. With traditional insurance, “the average premium in Texas is US$731 for six months,” explains Autograph spokesperson Leslie Kolleda. For a typical customer saving the Texas average of 25%, the annual saving comes to US$366. The per-trip saving can also be impressive, as the utility-style bills that customers receive monthly attest — the insurance for a 30-minute afternoon trip works out to about US$1.20 in an urban area, more than the US$1 fare that Houston’s bus service charges. That charge is avoidable, Ms. Kolleda notes cheerily. “The less you drive, the less you pay.”
And the more you have an incentive to find ways to save further. In cities with convenient public transit, many automobile owners weigh the cost of gasoline and parking for a particular trip against the bus fare. The cost of insurance quite properly never enters their calculations. Once insurance becomes an avoidable cost, with consumers receiving monthly bills itemizing their driving times, the calculations change dramatically. While small savings may not loom large to the affluent, many people of modest means — the main users of public transit — will often choose to leave their cars at home and pocket the cash.
Once pay-per-minute insurance becomes widely available, low-usage drivers will switch to it in droves, leaving high-usage drivers without anyone to subsidize their insurance costs. Their rates will then climb steeply, giving long-distance commuters an incentive to switch to rail or other forms of transit, or to move closer to their place of work.
More significantly, with large numbers of low-usage drivers happily hooked up to satellite systems, and understanding that they need no longer subsidize heavy users, drivers will be primed to eliminate a much greater inequity — subsidized roads. Under the government’s current road-financing system, low-mileage drivers and non-drivers subsidize high-mileage drivers through property taxes and other indirect or hidden levies. By tolling vehicles for the actual costs associated with roads, commuters (who cause expensive new roads to be built) and heavy commercial vehicles (which cause most of the harm to pavement) would finally pay their fair share, discouraging their overuse of roads and sparing the cost for everyone else.
Sprawl would then abate, and public transit use would accelerate, as economics cuts the automobile’s exaggerated market share down to size. Drivers do respond to price signals. With gasoline prices on the rise, the increase in the number of miles logged by U.S. vehicles has been slowing, and last year, for the first time since the disruptions caused by the OPEC oil crises decades ago, the total number of miles logged declined — and this despite a healthy economy and increased population growth. Public transit use, meanwhile, showed a hefty increase.
Trends like that augur well for the Autograph system. “People who use a lot of public transit are good prospects for our insurance,” Ms. Kolleda confirms.