“Green” Auto Insurance

Two related insurance companies, Sequoia and Personal Express, were approved on Earth Day to offer “green” car insurance in California.  They are the smallest insurers by far to win  approval.  In 2009 the larger of the two, Personal Express, was ranked 101st in California private passenger insurance market share, at about 4% of the market.  Sequoia was ranked 151st, with .05% share.

In the approved filing, specific details are given for AccuRate Express, the plan for Personal Express.  Some interesting features are:

  • Like already-launched plans by State Farm and Auto Club of Southern California (AAA), customers may self-report odometer readings
  • Unlike the other two plans, AccuRate Express does not provide for odometer reporting by a “technological device” — either factory-installed (OnStar, under State Farm’s plan) or aftermarket (a Delphi-supplied plug-in device for Auto Club, and OnStar’s rear-mirror-replacement unit for State Farm, both available later this year)
  • Instead, AccuRate Express gives a 1% larger discount compared with simple self-reporting for either: 1) providing a recent invoice with odometer recorded from an oil change, tune-up, smog test, or car repair; or 2) driving to their office to have the odometer read

Already it is clear that verified-mileage plans will offer California consumers a number of new choices for insurance.  Their challenge, as for consumers outside California, will be to sort through the details to find the lowest-cost plan for each vehicle.  At least in California that only depends on how far a vehicle is driven each year, not on how it’s driven too — at least for now.

Last week CSE Safeguard Insurance Company proved that verified-mileage auto policies won’t be limited to the largest insurers in California.  They are 70th largest in the state, and plan to offer their verified-mileage SAVE program immediately after approval.  The only insurers filing before them were the state’s largest auto insurer State Farm and second-largest Auto Club of Southern California.  Both were recently approved and launch this month.

Here is how these three verified-mileage plans are similar:

  • Any privately-insured vehicle can be covered through “self-reporting” of odometer readings by the vehicle owner to the insurer
  • The insurer reserves the right to independently verify accuracy of such “self-reported” odometer readings

Here are some ways they differ:

  • CSE only offers the “self-reported” alternative; State Farm also offers a “device-based” alternative for OnStar equipped vehicles,  and Auto Club offers a “device-based” choice using a telematics device supplied by Delphi that can be attached to most vehicles
  • State Farm and Auto Club start with a fixed discount for the first policy period, but CSE does not; their SAVE program  immediately starts its full verified-mileage discount based on expected annual mileage
  • CSE “trues up” mileage for their discount calculation at the end of each policy term based on actual miles driven; fewer miles than expected earn a refund, and more miles than expected require more payment
  • Approaches to independently verify “self-reported” odometer readings may be quite different
  • State Farm may require independent odometer readings
  • CSE may accept a recent photograph of the odometer, a recent oil-change invoice with mileage indicated, or a recent smog certification showing an odometer reading
  • Auto Club may use any approach that meets regulations

Today Allstate introduced Drive Wise®, their usage-based auto insurance that seems designed to compete with Progressive’s Snapshot℠.   Details can be found in their press release here: http://www.allstatenewsroom.com/releases/safest-illinois-drivers-save-with-new-allstate-drive-wise .

Here is how these two innovative auto insurance products are similar:

  • The policy holder attaches a wireless unit to a 1996 or newer vehicle’s under-dash connector to transmit driving data to the insurer
  • The product is “behavior based”, meaning the insurer monitors when and how the vehicle is driven (but not where), in addition to how much
  • The consumer only learns the amount of discount after signing up for the policy, driving data are transmitted, and the insurer evaluates it

These are their differences:

  • Allstate’s Drive Wise is only available in Illinois, but planned for more states early next year.  Progressive’s Snapshot is already in 25 states.
  • Drive Wise offers a maximum 30% discount.  Snapshot’s maximum discount varies somewhat by state, but is also 30% in some states.
  • Drive Wise offers an immediate 10% discount, and substitutes the earned discount of up to 30% later, based on miles driven and a calculated driving score.  Snapshot usually (but not yet in every state) starts its earned discount after 30 days of driving.
  • Drive Wise likely requires its device to remain attached to keep earning discounts.  Snapshot usually (but once again, not yet in every state) can be returned after the first 6-month policy, and a renewal discount based on the six months driving will be applied to the renewal policy.

All usage-based auto insurance will offer consumers who drive less than average a way to save money.  Plus, behavior-based policies like Snapshot and Drive Wise can save lower-risk drivers even more.

Progressive says they plan to continue their aggressive rollout of usage-based insurance product SnapshotSM, also called Snapshot DiscountSM.

From Progressive’s 3rd quarter 2010 financial report, released yesterday:

SnapshotSM, our usage-based insurance product, is now available to Direct auto customers in 24 states, including 5 states added since the end of the second quarter 2010, and Agency auto customers in 12 of these 24 states. We plan to continue expansion of Snapshot into about 15 additional states, depending on regulatory approval and business results, over the next nine months.

Progressive CEO Glenn Renwick’s comments in today’s management teleconference with industry analysts:

Along with that, we actually expect probably later in the first quarter, maybe around the cusp of the first and second quarter, to be going more national with our Snapshot advertising. So we have some Snapshot advertising designed already and available for a local market test but we’ll wait until we have a slightly increased number of states with our Snapshot. We’ve got 24 there in direct today. I think we put that in the 10-Q, and we’ll have at least 75% of the country covered by that offering, and we’ll nationally advertise it around the end of that quarter.

In case anyone wondered how serious Progressive is about deploying usage-based auto insurance, they gave a clear answer today: very serious.  At least that’s our take on the following section from their quarterly report to investors published earlier today:

… our usage-based insurance product is now available to Direct auto customers in 23 states, including 4 states added in July 2010, and Agency auto customers in 12 of the 23 states. We plan to continue expansion of our usage-based product, including the reformulation to our Snapshot DiscountSM product, into about 15-20 additional states, depending on regulatory approval and business results, over the next twelve months.

To avoid losing their lower-risk/higher-profit customers to Progressive, auto-insurance competitors should launch their own usage-based products soon.  In light of Progressive’s recent patent-infringement lawsuit against Liberty Mutual, they are likely to start with Verified-Mileage policies since Progressive has never indicated the limited approach used by those policies would infringe their patent claims.

Another reason insurers other than Progressive may launch Verified-Mileage plans first is because they involve only one factor based on data captured from customers’ vehicles, which is actual miles driven. Plus, Verified-Mileage class plans filed in California by State Farm and the insurance affiliate of AAA – Southern California provide details for how they will use actual mileage to calculate potential discounts.  These are useful reference points to insurers developing Verified-Mileage plans

That is a much simpler situation than those involving advanced, “behavior-based” plans like Progressive’s MyRate® (now being modified and rebranded as SnapshotSM).  To develop their more-complex algorithms using additional factors, Progressive collected and analyzed over a billion miles of driving data from customers, starting in 1998.  They are keeping details of their algorithms confidential for competitive purposes, a policy they defend based on their many years’ effort and cost to develop them.

A growing number and variety of usage-based auto insurance plans are coming to your state soon.  In five to ten years most consumer vehicles will likely be covered by usage-based insurance —  triggered by Progressive’s introduction and aggressive roll-out of this industry-disrupting innovation.

Progressive recently introduced significant changes to their usage-based auto insurance program.  Earlier described as a Pay As You Drive® program named MyRate®, it is now simply called SnapshotSM or Snapshot DiscountSM.  (Those trademarks and service marks are owned by Progressive.)

The new name reflects changes to overcome detractions identified by surveyed  consumers, according to Progressive’s  senior management during their Annual Investor Relations Meeting last month.  The new SnapshotSM program (but see notes below) offers:

  • an immediate discount after 30 days for lower-risk driving
  • a renewal discount for lower-risk driving during the six-month policy
  • removal of the Snapshot monitoring device after the first six months

Progressive’s earlier MyRate® program did not apply an earned discount until a following six-month renewal policy term, and required that a MyRate® device stay continuously attached to collect driving data.

Progressive’s management stated they had been target-marketing MyRate® but believe SnapshotSM will have broad appeal.  It is now available in 22 states, should reach “half the country” by year-end, and will be further expanded next year.  With positive early results, they “expect to be broadly advertising” SnapshotSM in 2011.

Progressive’s SnapshotSM website gives a likely preview of their mass-market advertising plans.  Earlier MyRate® short videos on installing the in-vehicle device and accessing reports have been removed.  Instead, the SnapshotSM-rebranded website features smiling spokesperson Flo with a large vintage camera ready to take the viewer’s picture and the caption “Say savings!”

Note 1: Progressive’s usage-based programs originally introduced in about 20 states as MyRate® are already being rebranded as SnapshotSM.  However, program details vary by state and some of those do not yet fully match the SnapshotSM approach identified above.

Note 2: Under the SnapshotSM program, Progressive reserves the right to have a new driving-data “snapshot” captured to maintain a usage-based discount.  Requests will likely be triggered by changes in vehicles, drivers, etc. that can affect driving mileage, times,  and/or behavior.

Very soon after State Farm broke the ice with the first filing for Verified-Mileage auto insurance in California, an insurance affiliate of AAA of Southern California has become second to file.  Insurance Exchange Of The Automobile Club is requesting a December initial launch, only three months after State Farm’s.  Their policies will be offered exclusively through AAA of Southern California.

So far, these filings are following the same order as the market-share rankings in California.  In 2009, State Farm was #1 with about 13% market share, and Insurance Exchange Of The Automobile Club was #2 with 8%.  It will be interesting to see which firms file next, and how quickly.  (Allstate had #3 market share with 7% and the insurance affiliate of AAA – Northern California, Nevada and Utah had the #4 position with just under 7%.)

Here are highlights of AAA of Southern California’s plan versus State Farm’s:

  • Both keep their earlier “estimated mileage” alternative available
  • Both offer two verified-mileage alternatives
  • Higher discounts go to consumers using “technological devices” to verify their mileage
    • State Farm will initially offer this for vehicles with OnStar
    • AAA’s “Telematics Verified Program” will offer this for any vehicle and compatible AAA-approved “technological device” (which can cover over 90% of current consumer-owned vehicles plus all new models)
  • Lower discounts go to consumers not using “technological devices”
    • State Farm will allow consumers to self-report odometer readings, but be required to verify those readings if requested
    • AAA will allow any approach for reading and reporting odometer data that is allowed by California regulations
  • Either way, significant discounts are available to consumers for vehicles driven less than average mileage each policy term
    • State Farm offers up to 45% discount for self-reporting, and up to 49% for OnStar vehicles
    • AAA also offers up to 45% discount for self-reporting or through other non-device methods, and up to 50% for use of any approved “technological device”

The real comparison, of course, is between the actual dollar amount of your insurance premium after all discounts are counted,  including these for verifying mileage.  The focus in this post is California, but the same lesson is true in any state where  “green” car insurance of any type is available.  We will address in future posts the easiest ways to fully compare “green” car insurance with traditional alternatives to find your lowest-cost policy.

Next Page »