Progressive has introduced a new discount program designed to offer lower auto insurance premiums to drivers who have favorable risk profiles. The idea of offering discounts to drivers who do not use their cars for commuting or drive very rarely is nothing new. Auto insurers have been surveying customers for years regarding such habits. However, Progressive’s new program is not based on subjective self reporting by policyholders. The company will monitor driver behavior using an electronic device.
Progressive’s new program, named “Snapshot Discount”, is voluntary and involves installing an electronic device in the policyholder’s car. This device connects to the car’s computer system and stores information regarding how the vehicle is operated. Factors such as overall mileage, time of operation, and driver habits are stored in the device. After thirty days, the customer will be informed whether a discount will be offered. The device does not have GPS capabilities in order to address privacy concerns.
The company has stated that the program will not cause a customer’s rate to increase, but it is unclear whether customers are going to be willing to take that risk. Presumably, the device will be capable of detecting dangerous driving, or even driving that is perceived to be dangerous but might not be. For example, traffic conditions sometimes legitimately require evasive maneuvers that could be interpreted as dangerous driving. Progressive may have measures in place to only detect habitual patterns of dangerous driving, but the methodology is not transparent.
Insurance companies attempt to achieve underwriting profitability by setting premiums at a level that can cover underwriting losses as well as overhead expenses. At the same time, insurers are interested in expanding market share. These goals can often conflict since aggressively growing market share requires lower premium pricing which can lead to higher loss ratios. To the extent that Progressive can identify the safe drivers and set premium levels aggressively for only those drivers, market share gains may be possible without compromising underwriting profitability.
Progressive’s latest discount program makes a great deal of sense but whether customers are willing to overcome the “big brother” aspect of plugging in a monitoring device remains to be seen.
Disclosure: The author does not own shares of Progressive.