RIP PAYD

Rest in Peace Pay As You Drive.  You were a necessary step in the evolution of insurance. A number of insurance companies experimenting with PAYD have recently dropped their projects.  Some of which were quite large.  These projects had to take place; the first movers who have spent time, resources and money should be congratulated for their efforts: moving closer to find the insurer’s holy grail. Using technology and real time information to proactively identify a high risk driver and reduce his or her risk.

So why drop these projects? What have these insurers found that made them understand a shift in direction is needed?  Why doesn’t PAYD work? As in most complex situations the solution is in the right mix.  To successfully leverage real time data to improve risk assessment and drive risk down, the following need to be in place:

1.       Robust and proven technology creating a cost effective data stream..

2.       ..Which needs to provide higher correlation to risk than existing tools..

3.       .. and can also be used to drive effective behavior changing feedback to drivers..

4.       .. on a platform and with a value proposition drivers will want to use.

The PAYD models experimented with until today do not check the above boxes.  The most important of the above is point number four, user acceptance.  As the companies experimenting with PAYD have found out a product which is not supported by the end users will not take off the ground, regardless of what valuable information it provides the insurance company.

There is an old joke about a group of sales people that met to figure out why the canned dog food they are selling is not being purchased by dog owners.  One sales person claimed the package wasn’t attractive enough.  Another said the price was wrong, and a third claimed marketing was not effective.  Finally, one of the sales person rose to his feet a said, guys, the dogs.. They just don’t like it..

And in the case of PAYD, the “dogs” just did not like it.  Following up on where and when you drive, has proven to be just too much for the average person’s appetite.    Also, knowing a drivers risk is just part of the equation.  The real benefit lies in helping a high risk driver reduce or completely eliminate his risk. 

In a PAYD model this requires drivers to modify when and where they drive;  for most of  us this is blasphemy.  I own a car, and purchase insurance, so I can drive where and when I want. As some drivers commented in interviews after being approached to join a PAYD/let me know where you drive project, they will not share their whereabouts for any discount in the world.  Other drivers realized that opting for PAYD is actually more expensive than ordinary insurance as they could be panelized for collecting many miles or driving at the “wrong” hours, regardless of whether they drive safely or not.  And when the dogs don’t like the dog food, the dog food will just not sell.

This reminds me of another old story.  A person lost his keys on the dark end of the street, but was looking for them on the other side of the street that was lit by a shop window. “Why are you looking for your keys here, if you lost them there” asks his surprised friend.  “Well”, he answers, “this is where the light is – it’s easier to look”.

The first insurance companies, who opted for PAYD, have been looking in the wrong and easy place; wrong technology, wrong data stream.  It is relatively easy to pull location, mileage and length of trips information from vehicles.  But how valuable is it?  Are they strong indicators of driver risk, and can this data stream help modifying driver behavior?  Looking at the PAYD program to date being pulled off the shelves, provides a negative on both.

In order to have both insurers and end users such as teens, parents or other drivers embrace the power offered by driver behavior based technologies we need to provide all users with a solid value proposition.  We need to be able to provide insurers with data and processes that can help identify driver risk prior to a crash and help drivers reduce their risk.  We need to provide clients with a safety service they will want to use.  All is possible today. And no, you do not need to track where I go and when in order to do so.

Driver risk is the direct outcome of a driver’s attitude to driving and his driving skill.  The reason teen drivers are such high risk is not because of the multiple miles they drive.  On the contrary, driving instructors will claim they are not driving enough and not practicing enough.  Teen drivers are high risk because of the deadly combo of low skill and wrong attitudes. If we want to identify who is a high risk driver there is no need to collect exposure data, which incidentally, even when possible to collect, tends to upset the end user.  To identify a driver’s risk, we need powerful tools that can identify and evaluate his driving behavior more than his exposure.  Only this will reveal what is the true risk of the driver, regardless if he is driving one hour a week, or 20 hours a day. 

There is another benefit for taking the behavior route as opposed to the exposure data route.  Not only is driver behavior data more indicative of driver risk and thus provides higher value to the insurance company, it also provides insight into what specifically is risky in the way an individual driver drives.  This knowledge enables us to provide the driver with prescriptive guidance guiding him towards safer driving.  Repeat – guiding him towards safer driving as opposed to limiting or taxing his mobility.

PAYD was a necessary step in the direction of figuring out how to use data generated by the driver to identify and minimize risk.  The experiment is over and we can now move to the next step.  The future is in being able to help drivers become safer as opposed to limiting their driving.  Letting drivers manage their own safety without hurting their mobility.  Supporting, highlighting and benefiting safe driving behavior.  Once the drivers are happy with the solution provided to them, crashes will be reduced, and the wise insurer will remain competitive. 

Drive safely, it’s worth it,

Hod Fleishman

Founder and Senior Vice President of Business Development, Green Road.

Comments

[krunal]

Here's an app that lets you vent your road rage and rate bad driver online http://www.driver-ratings.com

[best drivers]

I have read whole information about the RIP. There is required to follow the traffic rules and regulations to reduce the road rage and incidence of the accident. You have nicely explain about all things of the driving. I am appreciated to share the valuable information. The reason is that there is required to aware to the people about the fact.