I’ve been thinking a lot lately about that little device that Progressive Insurance has been pushing lately to help save money on your car insurance. The Snapshot™ device is Progressive’s attempt at using technology to provide them with details needed to give their clients insurance rates that better match their actual driving behaviors. While a quick Google search returns many complaints that the device is “Big Brother” like, many more comments suggest that the device has saved them money. The device basically works by plugging in to the car’s information system and reporting back to Progressive on several key aspects of a drivers driving patterns such as breaking speed, driving distances, and driving times (e.g., after midnight). Progressive then uses that data to provide discounts to customers who voluntarily use this device.
This concept of being voluntary is critical to the concept of behavior pricing. I personally believe that behavior driven pricing will become more and more pervasive as companies seek to create more tailored products and services while helping to achieve societal sustainability goals. Let me explain.
The Progressive device, while voluntary, provides not only a cost saving to the consumer but also has an indirect benefit of instilling better driving practices for those who use it… namely less aggressive driving. I say indirect benefit because neither the company nor the consumer will directly benefit from this in the short term. However, in the long term, the company potentially saves having to payout for accidents while consumers may see increased gas mileage, decreased operating costs for their car, and, frankly, stay alive.
So this little technical device, which isn’t super advanced in and of itself, has many implications for driving the future economy… in my humble opinion.
In order to better convey my point, lets look at a few other examples of pricing driven by the completely voluntary adoption of behavior rewarded by service providers (both public and private sector).
- EZ Pass – a little smart card that provides users with the ability to zip through tolls for a discount over the cash toll price. For the State Highway Administrations, the savings come in the form of less cost for handling money and paying toll takers. The indirect benefit is less congestion at toll booths with less resulting carbon spewing from the tail pipes of vacationing families or daily commuters.
- Air Conditioning Unit Regulators – wireless devices connected to air conditioner and heat pump compressors to allow Electric companies to cycle these devices in times of high electricity demand. The benefit for the customer usually comes in the form of credits to their utility bill. The Utility benefits from not having outages during times of high demand, which cost them hundreds of millions of dollars a year. The indirect benefit of course is more stable energy generation resulting in lower carbon output.
- Speeding Tickets – though an unlikely example, the threat of higher penalties for greater infractions is the original behavior driven pricing model. The indirect benefit here is similar to the Snapshot device but also indirectly impacts infrastructure sustainability through fewer roadway improvements.
So going forward, using behavior driven pricing, either through technology or practice, seems to have a lot of appeal in helping achieve societies sustainability goals. Some of my thoughts on most promising near term opportunities are:
- In order to incent the greater use of mass transit, use the information from the smart cards being used across the US in transit systems to provide riders with tax rebates for proving you used mass transit for commuting purposes.
- Getting a small discount on the price of gas for voluntarily filling up your tank after dark, when it’s been acknowledge that there is a lower release of gas fumes into the atmosphere. The discounts could come from either the petroleum companies or the banks who issue cobranded credit cards.
- A non-consumer idea would be to attach a small weight and identification sensors to commercial dumpsters and trash trucks to allow companies to get discounts from Counties or States for keeping solid waste below contractually agreed to levels. Companies or building owners could work with occupants to figure out ways to minimize solid waste disposal.
There are many other examples I can come up with but the key is in the combination of using technology to enable voluntary behavior changes that result in economic value to the user and service provider while achieving societal sustainability goals. More and more companies seems to be looking for ways to explore this model… some successfully, others not so. However, as a user of EZ Pass and A/C regulators from BG&E, I consider myself as a good example of someone who has definitely changed my behavior to get that minimal economic benefit.