In late April, after attending a conference on TransLink - the Greater Vancouver Transportation Authority - Vancouver city councillor Anne Roberts said her municipality was planning to lobby ICBC. She said she wanted to give motorists the voluntary option of paying for their insurance based on the number of kilometres they drive. The proposal to use Global Positioning System (GPS) data for that purpose actually went as far as a Greater Vancouver Regional District (GVRD) submission to the Crown corporation.
Roberts' action stemmed from some innovative uses for GPS being tested by the insurance industry in other parts of the world. If satellite technology could work to bring down the cost of insurance premiums in Texas, why not Vancouver?
GPS has proven itself a reliable navigation tool for decades. U.S. military jet fighters can drop bombs on the doorsteps of their targets with GPS. Farmers can fertilize and plow their fields with unerring accuracy thanks to the technology. The opportunities GPS presents for the insurance industry, however, are only now emerging.
Several business models incorporating additional technology may push forward a new paradigm for auto insurance, and that's what Roberts was on about.
It's a small world
The GP system consists of 28 satellites constantly beaming down time and location data from their orbits about 17,683 kilometres above the earth. The satellites transmit this data to GPS receivers with the "brightness" of a 40-watt light bulb. Triangulation of the signals from four of the satellites can be used to locate the receiver's position on the ground.
The GPS cost the U.S. military about $9 billion to develop, launch and sustain over the past 30 years. Since being made available to the general public in 1983, the system has created an estimated $4-billion a year GPS industry. With the most advanced GPS devices now miniaturized to the size of a postage stamp, tracking stolen goods is commonplace application for the technology.
The most prevalent example of successful GPS use has been the tracking of stolen autos, but some manufacturers are even touting GPS as a way to keep an eye on high-end household electronics, the kids and the family dog. As a result of national security initiatives, in fact, the American government has mandated that by the end of this year, all new cell phones sold in the U.S. must be able to report their location automatically via GPS, so that callers in trouble can be located by 911 operators.
Every car a bait car
Law enforcement in B.C. has become a world leader in the use of GPS to curb auto theft. The Integrated Municipal Provincial Auto Crime Team (IMPACT), which is based in Surrey, has used GPS to tremendous success in the Greater Vancouver and Vancouver Island areas. IMPACT now has the largest Bait Car fleet in North America. Through GPS tracking, police dispatchers can monitor the location, speed and direction of travel of stolen bait cars. The dispatcher can coordinate a police response and when officers are in position to make an arrest, disable the auto's engine with the click of a mouse.
IMPACT has also launched what could be the world's first organized bait motorcycle, ATV, snowmobile and personal watercraft program.
But just how reliable and accurate is GPS in curbing theft of the average family car? Scores of auto-tracking systems have been created, but there are only a handful of market leaders and they are Canadian: Boomerang Tracking Inc. and newcomer to the market from Quebec, Vigil GPS are among them.
According to a technical paper written by Claude Arpin, the director of research and development at Boomerang, "GPS systems are in fact fragile, prone to error, easily disabled, and best suited for navigation purposes only."
Those are strong comments coming from an auto-tracking company ranked among the 50 fastest-growing Canadian technology firms last year by Deloitte & Touche, but Arpin makes them to support his claim the Boomerang product is better than common GPS and GPS/Cellular systems on the market.
There are six factors that can affect the accuracy of GPS receivers and combined they can only provide a position accuracy of 25 metres. "Whereas small commercial GPS receivers can be purchased for under $500, equipment that would have accuracies better than 10 metres cost anywhere from $5,000 to $10,000 or more."
That 25-metre location information is good enough for IMPACT or a trucking company dispatcher checking on the location of his fleet traveling in the open where the GPS receivers can communicate with a minimum of four satellites. Tracking a stolen vehicle by GPS is more difficult. It is "an error-prone, imprecise and unreliable process," says Arpin. "These vehicles will be driven by professional thieves who will most likely disable the GPS system by breaking or covering the easily-found antenna, and move the vehicle underground or into garages and containers to avoid open sky regions whenever possible."
GPS antenna cannot be hidden under metal; otherwise the signals will be blocked. The antenna must be visible to the four satellites to which it is tuned. On a typical vehicle that only leaves locations under the dashboard or under the rear window, he says. As a result, professional thieves can quickly and easily locate and disable the antenna, rendering the GPS device useless.
Boomerang Tracking Inc. provides insurance investigators and adjusters with detailed vehicle movement information leading up to a theft. Their devices can be installed in places other than normal GPS dashboard and rear-window positions and thereby successfully track stolen vehicles located in underground parking lots and storage containers, Arpin says. Boomerang2, the second-generation of the tracking device, offers Automatic Theft Notification service whereby Boomerang's in-house tracking team is notified of any unauthorized vehicle movement. Police and the vehicle owner can then be alerted.
Delegates to this year's IBABC Conference and Trade Show in Whistler saw a system with evolved telemetric services offered by Vigil Locating Systems Corporation. Those services provide the localization (position, speed and direction) in real time, door locking and unlocking, low-battery notification, excessive speed, exit of a predetermined area and secured car immobilization. Vigil combines satellite, cellular and Internet technology with monitoring stations on a 24/7 basis, similar to Boomerang.
Black-box data
Recovering stolen vehicles is important to the insurance industry, but some companies have been looking at GPS for other reasons, too. Data recording similar to that done by the 'black box' in commercial airplanes is now available to consumers. Vancouver-based LockDown Systems Inc markets a device about the size of a cell phone that, when installed in a vehicle, can track its movements and speed and then transmit the information through the Internet. Parents can monitor their teenager's driving from home or anywhere in the world.
The idea was borne out of a concern about street-racing, Dan Mellor, Lockdown VP of sales and marketing told the Vancouver Sun in August. "What we're trying to do is make the roads safer… and to combat peer pressure," Mellor said, adding that kids who are feeling pressured to drive dangerously can use the monitoring as an excuse. Getting everyone who rides in the car top consent to the monitoring before heading out alleviates any privacy concerns.
WebTech Wireless was touted in the Sept. 13 issue of Business in Vancouver as the second fastest-growing company in B.C. Large and small companies use WebTech products to monitor their vehicle fleets. Operators chart more than where delivery trucks are, how fast they move and what routes they take. "Operators can shut off the gas, unlock or lock the car, find out how many people are in the vehicle - all kinds of things," said company co-founder Anwar Sukkarie.
Pay as you drive
In 1998, in Texas, Progressive Casualty Insurance Corp. started the ball rolling on distance-based insurance by testing whether GPS could be the key to premium reductions for low-risk drivers. It concluded that pay-as-you-drive (PAYD) auto insurance was technologically feasible, but at the time, not economically feasible.
Progressive has continued the R&D with further testing in other states, and has patented a product called Autograph that uses a combination of GPS and cellular technology. Aviva has also been testing the technology on both sides of the Atlantic.
Aviva-owned Norwich Union in Britain in 2004 piloted a program to track driving behaviour. The insurance company installed 5,000 data-gathering units in client cars. With data collected on about one million journeys, the company hopes to launch a voluntary user-pay product next year for the rest of its 3.5 million auto customers.
In March of this year, Aviva launched a pilot project in Ontario. Working with 12 brokerages, about 5,000 policy-holders are being given the opportunity to try the Autograph system, according to Paul Fletcher, senior VP of marketing at Aviva. A small device that customers install in the car themselves "in about 10 seconds" logs distance, speed and time of day - but doesn't log where the vehicle goes, thereby bypassing any privacy concerns. Fletcher says the pilot will answer four things: the efficiency of the technology, whether the data is predictive and sound from an underwriting point of view, customer receptivity and, finally, the best way to market the product.
In Canada, industry watcher Todd Litman, director of the Victoria Transport Policy Institute, has researched the relationship between annual mileage and insurance claims. A study released by the Institute in July shows mileage is just one of several factors that affect crash rates. "It would not improve actuarial accuracy (i.e., how well premiums reflect insurance costs for a particular vehicle) to use mileage instead of other rating factors, for example, to charge all motorist the same per-mile fee, but accuracy improves significantly if annual mileage is incorporated in addition to existing rating factors, as with PAYD pricing," the study says.
Litman says PAYD is a practical way to compute premium pricing. Because it "includes other risk factors in addition to mileage, it makes premiums more accurately reflect the claim costs of individual vehicles." The study asserts motorists who continue their current mileage are no worse off on average with PAYD, while those who reduce their mileage save money. And, because PAYD rates incorporate territory factors, suburban and rural residents would only pay more if they drive more than the average amount.
Harry Pylman, chief underwriter at ICBC, doesn't believe the cost for devices and administration balance against possible benefits in premium reductions. Nor does he think the Texas pilot proved much.
He says that for the pilot, Progressive Insurance was "selecting customers they felt were most likely to benefit by going through a GPS rating approach and as a result everybody who signed up was saving money." Results, if that was the case, were therefore skewed too positively.
The cost to collect data on B.C. drivers and the expense to administer that data doom the PAYD concept here, he thinks.
Though the factory-installed OnStar system in new cars (General Motors offers OnStar on more than 50 models) "might be able to provide some of that functionality and connectivity", he suspects the monthly membership charge for the GPS service is a disincentive to drivers. With a monthly charge of $25, premiums would have to drop by at least $300 to make voluntary buy-in to a PAYD policy worthwhile.
ICBC has "no immediate plans to make any changes" towards PAYD, Pylman says. Were the Crown corporation to introduce PAYD, "in a smooth and simple approach for us to be doing it, we'd be looking at the optional coverages and the ones most affected by where you drive and when you drive would be collision and third-party extension." So premium reductions on comprehensive would not be very likely anyway. However, ICBC is keeping an eye trained on the PAYD horizon.
Technology at Mach speed
Paul Fletcher says he'd be "very surprised if an insurer wasn't interested" in PAYD technology, whether it's Aviva's or someone else's. New technology seems to be coming along every day.
A company called EarthSearch Communications, similar in nature to Boomerang and Vigil, is planning to enter the Canadian market in the fourth quarter, and it may offer an alternative for drivers on the cost hurdles. EarthSearch already has pacts with Volkswagen, Renault, Mercedes Benz and two telecommunications companies in South America. It approached the U.S. insurance industry with a no-cost offer to install their GPS product, AutoSearch, earlier this year.
EarthSearch allows insurers to promote the installation of the AutoSearch device free of charge to its customers with the acceptance of a monthly service charge to be paid by the insured. That would make OnStar type of connectivity more broadly available on older model cars as well.
In July, the EVI Management Group in Vancouver announced it was introducing British 'e-Plate' technology to Canada which could dramatically assist traffic managers. E-Plates are license plates with a special miniaturized transmitter. Upon registration, e-Plates would have a radio frequency identification device (RFID) affixed which would be permanently programmed with the insured vehicle's VIN. With a network of compact readers deployed around a city, traffic planners could record the time of day that an e-Plate had passed within 100 metres of an intersection, bridge or tunnel. And though e-Plate data might reward planners with roadway congestion data, in theory police could also use the e-Plates to help locate stolen vehicles as they travel across the city and past the readers as well.
The planets seem to be aligning for the application of GPS, cellular and related technology to insurance products to be the right thing at the right time. The technology is available, at an accessible price, and it serves a number of needs.
After nearly a decade of active involvement with road safety, brokers are all too aware that one of the biggest hurdles to overcome in changing behaviour is that most drivers think they are already safe drivers, and the road-safety message is for other people.
Doug Laird at Aviva's Vancouver office says, "When drivers can see cost savings based on how they drive, it will have an immense impact on their driving behaviour."
When consumers feel an even bigger pinch at the neighbourhood gas station, it's not a huge leap to assume many will begin to question why they are paying as much for insurance even if they are driving appreciably less.
"When you can buy a GPS unit at Canadian Tire for $399 - and you can now - you know it's just a matter of time," says Paul Fletcher. "Whether it's two years, five years or 10 - who knows? But it's inevitable."
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