Fleet News

Could pay as you drive cut costs?

Norwich Union launched ‘pay as you drive’ insurance amidst a fanfare of promised premium reductions in 2005.

The market, we were told, was ready for innovation, but three years later, the policy which looked certain to transform the industry had been withdrawn by Britain’s biggest insurer.

As the market leader, Norwich Union - now rebranded Aviva – was under pressure to innovate and, while the cash was available to realise new ideas, the technology in this case proved too costly and the sums simply just didn’t add up.

However, a recent alliance between telematics providers and one of the world’s largest fleet insurers could be about to realise the potential rewards that were first imagined nearly 10 years ago.

Martin Otter was head of operations for Norwich Union’s pay as you drive proposition when it was in its infancy.

He had already helped the business move from paper-based claims handling to 24-7 incident management, backed by a 24-7 call centre. However, he recognised the threat telematics posed to their core proposition of service delivery.

“If left to succeed, the insurers faced just handling the cash again,” explains Otter.
Norwich Union picked up on a piece of research in America which determined risk by how you drove, rather than where an individual lived or how old they were.

“How, where and when you drive must influence the risk and we realised that if we could understand more about that we could rate better,” says Otter.

A pilot saw thousands of motorists given the technology and the resulting data, especially if it related to any collisions, was analysed prior to the final product being launched.

“However, the challenge was the economics weren’t quite right at the time,” explains Otter. “The technology, the hardware, the data, the transmission over the airwaves, was roughly double what it is today in terms of pricing.”

Other companies prevailed - Coverbox still provides a pay as you drive proposition - but Otter was left to rue what might have been.

That was until he became involved with Zurich Fleet Intelligence.

Zurich is quick to point out that the aims of its global scheme are “rooted in improving the safety and performance of fleets” rather than pay as you drive.

However, the concept owes more than a little to its older sibling.

Now at Trimble – one of Zurich’s partners in the scheme - Otter is business development manager for the insurance initiative, covering Europe, the Middle East and Africa.

“The economic case is now right for everybody concerned,” says Otter. “A fleet manager can expect a good return on their investment.

“Whether it’s insurance costs or whether it’s uninsured costs, every fleet will carry an excess of some size and every collision costs a fleet in terms of downtime.

“But reduce the collisions by improving the driving behaviour and a fleet will always win.

“In addition, there’s an increasing emphasis on health and safety and duty of care, while I also think the barriers around privacy have disappeared.”

Launched in September 2010, Zurich Fleet Intelligence (ZFI) combines two pools of information consisting of ‘off-board’ data, such as driver’s licence, convictions and how the driver behaves theoretically, including their ability to do computer-based training, with actual driving behaviour.

“What the fleet manager gets is the ability to merge those two pieces of data,” explains Otter. “In addition, they get a solution that meets their business needs in terms of general telematics and as far as the insurance relationship is concerned, they have a layer of information about the safety of the drivers.”

Claims, in theory, should fall and as a result fleets should benefit from a reduction in their premiums. “If it’s reducing collisions, it’s reducing claim costs and premiums will naturally reduce,” explains Steve Stock, head of motor, Zurich Global Corporate.

“If we have a customer that’s going to buy into the concept, we will incentivise the cost of the insurance, so in simple terms, we have one rate for using ZFI and we have a different rate for not using ZFI.”

The insurer told Fleet News that two major fleets had already signed up to the scheme, with orders of 400 and 290 units, but the insurer expects more to follow suit.

Stock concludes: “With the way claims costs are escalating and the way operational costs associated with running a fleet is increasing, it could become the norm for fleet operators to invest in this technology.”


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