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3 Auto Insurance Models Every Fleet Manager Should Know

Jon AlvaradoJon Alvarado

Where the rubber meets the road for insurance companies and customers is payday. That is, how much does coverage cost, and how is it calculated? And, are these auto insurance models, whether traditional, Pay As You Drive, or Pay How You Drive, fair?

The traditional insurance payment model has remained largely unchanged for years. You enter your information, you get a yearly rate. But today, new automobile insurance payment models are changing how drivers (and fleets) get their rates, and how they pay insurers.

So, which are the fairest to fleets, and which pose the greatest risk to insurers?

Let’s take a look!

Traditional Auto Insurance Models

Under the traditional model – which remains the most common today, accounting for 96% of insurance plans – would-be customers answer a few cursory questions about their driving habits, then hit submit.

The insurance company’s underwriters (and, increasingly, artificial intelligence) take that information. Then, they compare these answers to those of other “similar” drivers, using them as a series of proxy variables for “safety” and “risk.” Finally, they generate a coverage plan they are comfortable with.

Of course, the problem with this model is that it just isn’t fair. As a fleet, you’re receiving receive rates based on the habits of other drivers. And those “safety risks” are determined by things like age, zip code, and proxy variables. These stand-in for risk but do not truly measure them. They are weak, approximate data points, designed to make up for a lack of knowable information.

And for insurers, they still take on sizeable risks because they know nothing about the actual driver they’re insuring, only common habits of similar drivers. For example, the average driver from Tampa, Florida may be more likely to have a collision than the average driver from Boise, Idaho, but if the driver from Idaho uses his or her phone more often, they are twice as likely to have an accident.

Insurers need to know this information. But the traditional insurance model just cannot provide it.

Pay As You Drive (PAYD) Auto Insurance Models

Pay As You Drive (PAYD) plans are similar to the traditional model in key ways but slightly different.

Unlike the traditional model, Pay As You Drive insurance plans (like Metromile) charge customers a fee based on miles they drive that particular month. It uses an onboard device (OBD) dongle that plugs into your vehicle and takes rudimentary distance-travelled measurements. Customers pay a low, base monthly rate, plus a small per-mile fee (usually a few pennies) based on how many miles they drove.

This low-tech solution is fairer than the traditional model, insofar as customers pay based on their actual driving mileage, and can pay less if they drive less. However, it remains an estimation and similarity-based at best. From Metromile’s own website, your base monthly rate depends on “several factors, including age, type of vehicle, and driver history.”

Pay As You Drive models still rely on unfair and imprecise proxy variables to determine coverage options. There is still a better way for fleets.

Pay How You Drive (PHYD) Auto Insurance Models

Pay How You Drive (PHYD) plans are by far the fairest insurance model on the market, and benefit both drivers, fleets and insurers.

Unlike traditional auto insurance models and PAYD models, Pay How You Drive models use advanced telematics data to offer customers a rate based on exactly how they drive. Whether via onboard devices (like Progressive’s Snapshot dongle) or via data-acquisition systems (like the Zendrive platform), Pay How You Drive models are based on the habits of just one driver: you.

Using Zendrive’s 150 billion miles of driver data and advanced A.I., we’re able to predict risky behaviors with up to 6x the accuracy of traditional models. The result is a real picture of a driver’s personal risk level.

Armed with this information, insurers can offer more competitive rates to known safe drivers. And, they can better shield themselves from risk by minimizing their liability with riskier drivers. For drivers, they enjoy lower rates and more rewards for their safe driving.

Further, smartphone-based DAS solutions like Zendrive are superior to OBD dongles because OBD dongles only measure data linked to a specific vehicle, rather than a specific driver. As more and more drivers tend to share a single vehicle, especially within fleets, this becomes a critical distinction and dramatically boosts accuracy.

With the data from the Zendrive platform, both drivers and insurers save money. The insurance market becomes just a little fairer.

And that’s a better way forward.


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Jon is the Content Marketing Manager at Zendrive. He distills driver data into insights and stories that educate and excite.

Jon is the Content Marketing Manager at Zendrive. He distills driver data into insights and stories that educate and excite.