INNOVATION
INNOVATION
Increasing appetite for pay-per-use insurance Alison Pittaway
Pay-per-use insurance goes very well with the changing consumer behaviour in mobility: people want to pay for what they are using. The solution gains attractiveness and seems a perfect fit for those employees who need comprehensive cover but only drive a little.
Car insurance has changed little in 50 years. Now, a raft of start-up companies is offering a range of options that keep pace with the innovations in car technology, such as telematics integration, to offer great choice and flexibility for policy holders. There’s no doubt insurance needs to change in line with evolving mobility requirements, such as car-sharing and short-term rental schemes. More flexibility is needed in terms of coverage (what is covered and what isn’t) and policy duration - including adjustable short-term, temporary and pay-as-you-go (PAYG) or pay-as-youdrive (PAYD) insurance. PAYG is primarily aimed at young people, typically those under the age of 25, who would otherwise be priced out of the insurance market. However, pay-per-use - or pay-how-you-go (PHYG) (as referred to by InsureTheBox.com) - goes one step further. WHAT IS PAY-PER-USE INSURANCE? Pay-per-use insurance is aimed at drivers who typically journey less than the average 7,500 miles per annum or who drive mostly on weekends or for a few short journeys a year.
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In the UK, start-up company By Miles launched the country’s first pay-per-mile car insurance policy in 2017. It is specifically aimed at low-mileage drivers. The company records every journey using a matchbox-sized telematics device plugged into the on-board diagnostics port under the steering wheel. Data from it logs every mile driven and at what time of day and automatically sends it back to the system. Drivers can stay informed of the cost of each trip through a smartphone app and are billed at the end of each month. InsureTheBox claims PAYG is not cost effective for users if they only use their vehicle once or twice a week. As with PAYG, their PHYG insurance policy relies on a black box installed system so that the number of miles driven can be monitored. It’s a milesbased policy which offers an even lower cost alternative for low-mileage drivers. In InsureTheBox’s case, the black box collects additional driving data such as time of day, type of roads and how the car is being driven (how the brakes and accelerator are used). This data is available to both insurer and policy holder through the company’s customer portal. After an initial period of information gathering, the data gets turned into Bonus Miles that rewards good driving. Drivers can earn up to 100 extra miles a month for safe driving. THE BENEFITS Once the telematics black box is installed, it provides a springboard for additional valueadds, such as engine and performance monitoring and fault code diagnostics.
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Pay-per-use insurance answers the need for solutions based on individual lifestyles and behaviours. The concept allows drivers to access the insurance they need when they need it.
But the primary benefit often doesn’t arrive until policy renewal time, which is usually the standard twelve month period. By that time, the insurer has acquired an accurate, data-based picture of the driver and their driving habits and will then (so they claim) be able to offer truly tailor-made car insurance for the following year. SAFER DRIVING Tests have shown that drivers modify their behaviour positively once they know they are being observed. Furthermore, after an initial period, they begin to see the benefits of better, safer, calmer driving. So, any insurance policy based around telematics integration is going to yield positive results in this respect, which is a strong point for fleets. As to whether or not it will deliver the huge premium cost savings promised, well that’s debatable - some drivers have won where others have lost, which is not good for fleets. That said, there are many additional benefits fleets can derive from telematics data (such as accurate mileage, fuel
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efficiency, driver behaviour), so the technology itself is worth the investment in that respect – although perhaps not if it’s tied to a pay-per-use insurance policy. CAN PAY-PER-USE WORK FOR FLEETS? Fleet-owners or managers must deploy stringent cost control and financial management so the biggest disadvantage of pay-per-use insurance for fleets is the unpredictability of the cost. Because it is use-based, it’s extremely difficult to determine how much the cost will be at the end of each month. Secondly, most policies are based on an estimated number of miles and the cost is tied to that. Fleet managers may be tempted to underestimate this number to achieve a lower cost and end up paying excess mileage charges which are more expensive.
law states that vehicles must have minimum insurance cover (3rd party) even if they are parked up. The only exception is if they are parked on private land and are registered with the vehicle licence authority as off the road (in the UK this is referred to as a SORN - Statutory off Road Notification). This means that, in addition to the cost of pay-per-use insurance, drivers or fleet owners considering such policies will have to factor in the cost of a basic form of minimum cover that means they’re legally compliant when vehicles are not being driven. For fleets, pay-per-use insurance can be unnecessarily restrictive and costly. As it is aimed at low-mileage driving, unless a vehicle spends over 80% of its time parked up, which most fleet vehicles don’t, it will not be a cost-effective option.
ARE THESE POLICIES FULLY LEGAL? There is another thing to bear in mind and that is that some pay-per-use policies do not cover vehicle owners’ full statutory legal requirements in EU countries. EU
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