What price lower insurance rates?

In two new tests, car owners will be able to let insurance companies monitor their driving via new technology in exchange for lower rates. The technology will track some combination of when, where, how far and how fast they drive, giving insurers a way to reward low-risk driving. Now just experiments, the technology might be a glimpse of the future of car insurance.

How about this?

In Minnesota, where the highway speed limit is 70 mph, drivers who go over 75 less than 0.1% of the time get an extra 5% discount. Drivers who avoid the most dangerous times – midnight to 4 a.m. on weekends – get bigger discounts than those who don’t.

Not surprisingly, one of the experiments is in Great Britain, the land of near-universal surveillance (I’m still waiting for those camera-based speeding tickets to arrive from Scotland). Insurers on both sides of the Atlantic are watching the experiment closely.

Here is the full story.

My take: I used to think that Amartya Sen’s Paretian liberal paradox had few real world implications. Now I’m not so sure.

Overall I don’t view this as a welcome development [addendum: though I don’t favor regulation]. Better monitoring and quality differentiation can make insurance markets work worse rather than better. In the limiting case, if the company could predict exactly who will have an accident, they won’t sell insurance at all. Plus my libertarian blood gives me “slippery slope” fears about this information ending up in the hands of government. Furthermore it is easy to imagine the practice becoming less voluntary over time. Yes people will drive slower but right now I’ll just say “Nein, danke.”

Addendum: Young women are rapidly becoming much worse drivers.


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