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Car insurance providers areintroducing location-basedinsurance premium balancingservices that will adjust theamount you pay depending onthe risk attached to your car'sgeographical location. Are thesebig benefits - or Big Brother?By Martin Courtney

UK VEHICLE INSURER Norwich Unionfirst offered pay-as-you-drive insurancein 2006, a much-vaunted commercialpolicy launch preceded by a two-year, 5,000user pilot scheme and extensive researchsuggesting that 67 per cent of UK motoristsat the time were 'ready' for this innovation.

The policy calculates driver insurancepremiums using in-car global positioningsatellite (GPS) technology, or telematicsblack boxes, to track vehicle usage andlocation - including time of day, type of road,and mileage - before sending users anadjusted bill at the end of each month.

It was aimed at two specific demographics:drivers aged 18-23 and 24-65, and claimed itcould offer insurance for as little as lp permile providing customers could avoiddriving in the small hours of the morning(especially at weekends), in rush hour, andon low-speed urban roads as opposed to dualcarriages and motorways.

One way or another, the estimableNorwich Union got its numbers wrong - thepolicy was withdrawn (or 'paused' in thecorporate parlance of the company) barelytwo years after launch following lowcustomer take-up. The UK public were clearlynot as ready to embrace technology-ledinnovation as had been anticipated andautomotive manufacturers proved reluctantto put the telematics and tracking devicesinto their vehicles by default.

Above all, Norwich Union noted concernsaround data privacy because the servicerelied on vehicles being constantly trackedand the use of data collected, which proveddifficult to assuage. "The notion of having ablack box in a car, particularly in the EU, wasa concern from a data privacy perspective,"says Philip Carter, senior vice president ofsoftware at analyst firm IDC. "NorwichUnion invested a lot of money in the pilot butscale is critical - unless you can get that scalein a reasonable amount of time it is difficultto justify the investment and turn it intoprofitable business line."

Driver monitoring appMeanwhile, it has emerged that NorwichUnion's parent company Aviva has notscrapped its pay-as-you-drive ambitionscompletely. Despite, or because of, itsexperience with black boxes the companybegan testing a driver behavioural appcalled Aviva RateMyDrive in August 2012,building individual profiles of 5,000 driversvia smartphone software. This turnsinformation collected into an individualscore that can be uploaded to the insurance >

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I < company to calculate premiums. "Therei is an understanding that mobile apps couldI replace the black box approach," says Carter.I "Most people are OK for telecommunicationsI providers to check where they are andi what they do, so there is a convergencei along those lines moving forward. "I Despite Norwich Union's rethink, otheri insurance companies took up thei pay-as-you-drive mantel, achievingj comparative if modest success primarily byi focusing on the younger demographic wherei the cost of supplying and fitting thei necessary hardware/software to the vehicleI can be better offset against notoriously highI premiums. These include Insure the Box,j Coverbox (underwritten by policies from thei Co-operative Bank, Allianz and Sabre), andi Ikube, a division of the Towergate InsuranceI company which has sold GPS-trackedi policies to 17-25-year-olds since 2006, havingi signed-up around 10,000 subscribers to date.i "People sometimes use it for a year or soI then drop-off, we are seen as a starting pointI to get on the insurance ladder," says Ikuhei managing director Ian Brown. "The youngeri market has higher premiums, but we arei starting to expand and look to provide moreI of a limited mileage type product to a widerI audience. The barrier to that in the past hasi been the relative cost of the technology

against the premium saving potential, butthe technology is advancing all the time andmore people are getting used to the idea. "

According to Thilo Koslowski, vicepresident of the automotive practice atmarket-watcher Gartner, in Europe andother parts of the world where rates can bepretty expensive, the insurance companieshave gone after younger drivers to allowthem more digestible insurance rates. "Butultimately," he says, "they need to figure outa way to make these more attractive toeveryone."

The Ikube policy uses a TomTom satellitenavigation system allied with a telematicsbox to record location, speed, mileage and'harsh steering or braking events' tocalculate premiums, which Brown insistswould take much more than somebody going

'Telematics will enableinsurers to adjust premiumsbased on the actual driver'sability and usage using realdata... This also means that ifyou are not a safe driver, youcould pay more premium-wise' Paul Felton, Direct line

around a roundabout a little tooenthusiastically to invalidate any deal. Aswith similar services, its terms involve adriving curfew during the hours of 11pm and5am (when a disproportionate amount ofserious accidents are calculated to occur),which is reviewed every three months.

"If they do break the curfew they pay anadditional premium," says Brown. "We callthem the next working day - very rarely dopeople deny that they have, and if they do wepoint them at the website to confirm it.Similarly we have not come across anyonewanting to block the monitoring system. Weget warning messages if something is nottransmitting to us very well - not if theydisconnect the battery during a service, butif there is no feedback for a period of time, orthey suddenly appear in an area completelydifferent from previously "

Big Brother looking after you?Curfews and monitoring are just two bonesof contention for many - the question isthe extent to which they willing to put upwith them for the sake of lower insurancepremiums, and whether those savingsreally are all that significant. Koslowskifeels that insurance companies are unlikelyto risk alienating potential customers bypushing 'Big Brother' tactics too far into

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driver-car environments, which create avery personal sense of space and privacy.

"Tracking driver behaviour to see howthey drive, that is getting too close to thecreepiness line for some people, thoughothers are likely to be fine with it," he says."Those that think they can save money ifthey drive in a certain way will happily openthe doors to the insurance companies, butothers will not."

The driving public may, however, begetting more comfortable with the idea ofhaving their location monitored by GPS -whether it is behind a steering wheel or as apedestrian. It can come as a surprise toprivate motorists that commercial drivershave long had their movements andbehaviours tracked by their own employersand the development; and increasingadoption of standard mobile telephonetracking technology - including GPS-enabledsmartphones, which feed into locationalservices from Google Maps and others - ischanging consumer attitudes.

Ikube's Brown points out that trackingalso offers a number of advantages, both forfriends and relatives able to track a vehicle'sprogress through TomTom's Web portal andfrom a safety aspect to both detect whenaccidents have occurred and help to work outwhy they happened.

"The technology can do a lot more now,"says Brown. "When we first started, it wassimpler GPS boxes that really just looked atdisplacement and speed which did not look atgravitational forces, and we just startedadding more of the behavioural things on thetop [of the functionality].

"So as opposed to how fast you are drivingyou now get access to a huge database of roaddata, which tells you average speed for thoseroads for example. You can be accurate towithin a few metres. We also have software

Generic example of GPS tracked car insurance system

Insurance companyagent receives alerts ifthresholds exceeded

Tracking device transrrutsdata to insurance companyvia standard GSM cellular network

In-vehicle 'black box' tracking devicecalculates and stores location, speed,and direction of travel data

Tracking data made available todriver for viewing on PC and/orsmartphone via Web portal

Vehicle insurance tracking technologies may use a combination of comms links (plus fixed-wirebackhaul) to relay locational and other telemetric data back to the insurance provider's IT systems

able to recreate the scene if a seriousaccident happens, so we can know, forinstance, if the car veered left."

A European Union initiative called theEcall System, planned to come onlinethroughout member countries in 2015, mayalso change the perception of the in-car blackbox, if only by familiarising drivers withtracking and telematics technology

The Ecall hardware will automaticallydial the emergency services in the event of aserious road accident being detected - basedon airbag deployment and impact sensorinformation - transmitting GPS co-ordinatesto local authorities in an effort to reduce

response times and get assistance to thecrash scene more quickly.

Premiums on behaviourInsurers say pay-as-you-drive goes someway to eliminate the age-old insureecomplaint that premiums are unfairly setbased solely on postcode or the activitiesof people within the same age groupregardless of individual characteristics,history, or address, by relying more onclosely-tracked behaviour of the driver.

"One of the biggest concerns regardingthe current way insurance premiums aredetermined has been insurers base risk not >

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There's more online...E&T Webinar: Exploring eCall and lab testing solutionshttp://eandt.theiet.org/videos/webinars/Vehicle technology and the older driverhttp://bit.ly/eandt-vehicle-tech-older-driversRAC reveals remote telematics to avoid breai<downhttp://bit.iy/eandt-remote-telematics

< just on their personal information, butalso on statistical analysis of a similar peergroup or characteristics. So an individualcould in fact be a really safe driver; however,because statistics say someone similar tothem is more likely make a claim, they willpay a higher premium," explains PaulEelton, head of telematics at Direct Line,an insurer that is currently trialling GPStracking technology with a view tointroducing commercial services at alater date.

"Telematics will enable insurers to adjustpremiums based on the actual driver's abilityand usage according to real data. Of course,this also means that if you are not a safedriver, you could pay more premium-wise."

Pay-as-you-drive calculationsBrown believe that the new technology"could open up a few postcodes that someinsurers have shied away from in the past"by contextualising the risk assessment.

"Just because you as a responsible driverhappen to live in a certain district, shouldyou be condemned for that? This is where it isreally evolving, around geo-fencing forinstance [where alerts are sent if a vehicleleaves or enters a certain area], and wherehigh value vehicles are involved. This is thearea where pay-as-you-drive could trulychallenge traditional car insurance businessmodels."

While some have questioned the ability ofGPS technology to deliver the sort of preciseinformation that insurers require tocalculate premiums based on behaviouralanalysis, others point out that, though not

perfect, its accuracy is reliable enough forinsurers' purposes - perhaps more so thanfor directional navigation.

"It is all about the accuracy of thetechnology; even getting simple informationsuch as mileage and sending it back to theinsurance provider can help themunderstand how a vehicle is being used,"says Gartner's Koslowski. "I think thetechnology is accurate enough [for that] -more than enough for a couple of yards, inmost cases though not 100 per cent."

"GPS can be pretty accurate, as many of usfind out from using satellite navigationtechnology Though which lane you are in ona motorway would not be important fordetermining your competency as a driver,however, your driving style will certainlyassist an insurer," says Direct Line's Felton.

The company states that its policies areaimed at all of its customer demographic, notsimply the younger portion. It is a bid toachieve scale and get a more accurate ideaabout individual driving behaviours andattitudes rather than calculate premiumsbased on aggregate figures for their riskgroup - in theory, rewarding drivers whosehabits meet the company's estimation of lowrisk, and penalising the others.

"GPS tracking can provide muchinformation that enables us to determine adrivers' competency and vehicle usage," saysFelton. "From braking, cornering, mileage,and the time the vehicle is driven, all thisinformation and more will enable an insurerto determine an individual risk profile.

"Traditional rating factors will still needto be incorporated - such as the area a policy

The next development of insurancetracking technology will interoperate

with car systems via Bluetooth

holder lives, the type of vehicle, and previousclaims history."

Tracking within the lawThis element of pay-as-you-drive carinsurance has the potential to cause morecontroversy and debate than any other- what constitutes safe and dangerousdriving according to how drivers brake,corner, and accelerate - and how insureralgorithms apply those metrics to comeup with their premiums. "There is alegal aspect as well -just because youaccelerate fast does not mean you are abad driver," Koslowski points out, "butperhaps one who is actually more aware."

Brown adds: "Insurers have to be careful.We do not want to penalise people having toemergency stop for the right reason, such asif a loose dog runs out in front of you - all thealgorithms are designed to have sensitivedriving events, but what we look at is ifdrivers are continually doing it."

At this stage of the market's development,talk of new technology to supportpay-as-you-drive insurance is perhapsspecious - the more pressing challenge forinsurers is to overcome privacy concerns andchange people's attitudes to GPS or mobiletracking for insurance purposes.

With the European Court of Justice rulingthat insurers will no longer be able to chargedifferent rates to men and women, more willnow look to calculate premiums based onother criteria and diversify their ownportfolio in order to compete with morenimble rivals, even if it means cannibalisingtheir own revenue streams in the process. *

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