Friday, September 18, 2015

What Exactly Does Snapshot Measure?

Here is a fuller expose of Progressive Insurance's Snapshot.We love this example of monitoring potential moral hazard through driving behavior. People are expected to drive better if they benefit from policy discounts from good driving (or is it reducing the "beep-beep" nagging by the device?). But it turns out just two practices trigger the nagging: hard braking and driving in the wee hours.

Hat tip: Isaac Labauve

20 comments:

  1. So how much do you value your time?

    This posting reminded me of the rational-actor paradigm that was introduced in Chapter One. Progressive is recognizing that to change behaviors of its customers, it needs to change their self-interest and that is accomplished by offering incentives. Let’s look at another incentive program that is commonly offered – the defensive driving prevention course. With a six hour effort (either in class or online) and a standard $25 fee, you can save up to 10% of your liability insurance for the next three years. I’ve had many friends dismiss this benefit saying that their “time is more valuable than giving up one Saturday to save a few dollars.” Doing the math quickly, your upfront cost is $25 and the savings is roughly $90 on a $1000 car insurance premium. This savings over three years add up to $270 and then you deduct the $25 cost, and you have a savings of $245 (aka the marginal benefit). For the six hours of sitting in a class room (or online), you essentially earned $40.82 an hour which equates to nearly a $82K salary. For most of us, that’s pretty darned good.

    This SnapShot program hasn’t explicitly outlined the financial benefits, and therefore the decision maker (aka the driver) is likely not to have enough information to sign up for this program immediately, especially with the risk of actually increasing your rate as well. This driver here isn’t convinced that the savings justify the efforts required for this program. Snapshot Verdict: Stalled.

    JM

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  2. Snapshot has always sounded interesting in theory and given the explicit details contained in this post I am now officially uninterested. Although each person and their driving habits are different, and the fact that this only details the story of one driver for whom the program does not seem to be worthwhile, knowing what Progressive is looking for is a huge advantage. Knowing what they are looking for helps to make an informed decision as to if the program would help or hurt another person’s insurance rates. For me, that is too much data being collected. Although I have had computer and internet access for most of my life, I am still of the opinion that oversharing is a complete possibility. Many younger adults are unconcerned about posting their whereabouts on the internet, that or they have grown up in the oversharing generation and do not think twice about it. However I do believe that many things should remain private, driving data being one of those. Not to mention, there is a risk of the snapshot having the effect of increasing rates based on driving history, and that is just a risk that I am not willing to take.

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    1. I have always been opposed to the concept of someone monitoring continuously whatever I do, especially driving. Having an electronic ‘only’ monitor continuously transmitting your every action strictly on a digital basis without additional information for correct interpretation is an offense on your personal conduct without any ability to defend yourself. The algorithms that digest the digital return from “Snapshot” only calculate electronic statistics without any clinical material for correlation. From the stories I’ve read, the insurance company (Progressive, although other companies may do similar) look for the “spikes” that are outside of their accepted norms and standards. Frequency based occurrence without correct situational evidence can easily lead to biased interpretations that would incur increase in “ratings” of that particular driver and most likely, an increase in that individual’s insurance rates and premiums. Perhaps quite unfairly.
      Since I drive on highways daily, with the morning commutes having episodes of sever congestion compounded by drivers cutting in and out of lanes with high frequency, often without signaling, the general driving characteristic is sudden application of braking to avoid hitting the car that has just cut in front. Not only is paying attention paramount, but gradual adaptation of driving technique evolves to reduce the potential of constant “cut-ins.” The changes in acceleration and deceleration (hard braking), although correct in this environment, would artificially give the impression of ‘poor’ driving and higher risk behavior.
      While my driving history is good, I would not take the now known risk of increased premiums due to the incorrect evaluation of typical rush hour driving. (FYI, I have driven my Corvettes on road course tracks for over two decades, am an instructor for the groups I with whom I participate, and have used that experience to improve my overall driving skill sets.)
      Lee Lichtenstein

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    2. After reading the entire article, I was extremely shocked about the entire concept. It goes to show that the company is always looking out for their bottom dollar. As you continue to save on costs through discounts, they are secretly raising your premiums. If you opt to not continue the program, it is my understanding that you are stuck with the new premiums at a higher amount.

      Thus, the consumer, progressive driver, opts to increase his or her own marginal cost unknowingly but receives a discount until they opt out of the program. Thus, the progressive driver is receiving a slight gain in marginal revenue via discounts but more than miniscule.

      From an economic standpoint, a driver is saving a bit of money (negligible in my opinion); however, the driver puts himself or herself at risk for future reduction of claims if found to be a “worse than average” driver by means of highly ineffective braking opportunities, high speeds and/or high risk times. Finally, I sympathize with many of the concerns related to a person’s privacy with this technology and what it means. I am certainly glad I read this article.

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  3. Progressive’s “Snapshot” relies on the fact that we tend to be overconfident in our abilities. While the website states that Snapshot is “usage-based insurance”, television advertisements tout it as being behavioral, “the better you drive, the more you save”.

    Progressive has given consumers the opportunity to try the product because they promise “your rates won’t go up due to bad driving habits”. By coercing their consumers into trying the product they have given themselves an opportunity to better understand their consumer base. What are the driving patterns of people in certain areas, age groups, male or female, social backgrounds, etc.

    “behavioral economics” collect real world data on past consumer behavior and conduct experiments involving real transactions to gauge how consumers might behave in future situations…mak[ing] startlingly accurate economic predictions” (Behavioral Economics).

    Therefore, while I wouldn’t use it, mainly because I know I drive like a jerk but I am perfectly happy with there being no absolute proof of the matter, I can see why many might use it… if it means a potential discount on an already hefty monthly (or bi yearly) expense, anyone looking to “pinch a penny” might take advantage.

    Behavioral Economics. http://www.whatiseconomics.org/behavioral-economics

    ESC, Managerial Economics, FALL 2015

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  4. Snapshot is definitely not for me and there are easier ways for us to reduce our insurance premiums. My issue with Snapshot is the collection of data which could be used against me; I also could not find information on Progressive’s website about how long data is retained before deletion and if the information could be used as incriminating evidence against the driver. Despite my personal views about snapshot, many would see this as a means to gauge their driving habits while also saving money and would not have any privacy concerns despite the high level of telemetry involved. The Snapshot service is a financial gamble for drivers which only benefits Progressive; it saves the customer a little bit of money in the short term but provides the insurance company with data which could justify a rate hike in the long run.
    Snapshot is basically like a dash cam, it could help you determine the driver at fault in an accident and also incriminate you in speeding and other traffic infractions if the video is viewed by law enforcement.

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    1. You make a great point in regards to privacy. I am a bodily injury adjuster at a major insurance company, not Progressive. I have to say that I understand your concerns about the privacy aspect of this product, however, in the event of an accident, or even a crime as explained in the article, this tool could be invaluable. Your insurance company is there to protect you. In the event that the information could be used for an accident, they would only use it for your best interest. In regards to using this info as being an invasion of privacy, trust me, there is not a lot of privacy when insurance adjuster investigate claims. With social media and technology these days, this Snapshot device is a small piece of the puzzle when it comes to privacy.

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    2. You make a great point in regards to privacy. I am a bodily injury adjuster at a major insurance company, not Progressive. I have to say that I understand your concerns about the privacy aspect of this product, however, in the event of an accident, or even a crime as explained in the article, this tool could be invaluable. Your insurance company is there to protect you. In the event that the information could be used for an accident, they would only use it for your best interest. In regards to using this info as being an invasion of privacy, trust me, there is not a lot of privacy when insurance adjuster investigate claims. With social media and technology these days, this Snapshot device is a small piece of the puzzle when it comes to privacy.

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    3. I also agree with the privacy issue. That was what first came to mind as I was slowly being disengaged by what looks like a handy little device. I guess if the money is a big deal to you, it might be something to look into. But there are a lot of drives out there where this would be more of a nuisance than a safety net. I don't see this device as something customers would benefit from in the long, because like you said it does seem like another dash cam.

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  6. Snapshot by Progressive definitely has its proc and cons for insurance consumers. As far as the cons go, the discount does not seem to be all that substantial, and there is the issue of privacy. However, although it’s not a huge savings, every little bit helps. Of course, if you’re not a great driver, the impact on rates would be the opposite. What I feel is most helpful about this product is that it creates better driving habits. Using Pavlov’s theory and institute the “beeping” alert when a driving maneuver or speed isn’t safe, creates better driving habits for the consumer, which is worth more than a couple dollars in savings.

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  7. Snapshot by Progressive definitely has its proc and cons for insurance consumers. As far as the cons go, the discount does not seem to be all that substantial, and there is the issue of privacy. However, although it’s not a huge savings, every little bit helps. Of course, if you’re not a great driver, the impact on rates would be the opposite. What I feel is most helpful about this product is that it creates better driving habits. Using Pavlov’s theory and institute the “beeping” alert when a driving maneuver or speed isn’t safe, creates better driving habits for the consumer, which is worth more than a couple dollars in savings.

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  8. Amidst a generation in which we are swimming in technology, we need to be careful as to not drown ourselves in it. I definitely feel as if this is another one of those areas in which technology has gone too far, and is invading our personal space. There are many factors for which insurance companies determine and set insurance rates. Factors such as; age, employment status, marital status, educational level, and credit ratings are all factors that have nothing to do with driving habits, history and experience. In an age in which we are hypersensitive to discrimination, I personally cannot believe that these practices not only exist, but are widely accepted and utilized in this industry.

    The insurance industry is one that has always gotten under my skin. We pay through the nose to insure just about everything in our lives (home, auto, life, boats, jewelry, etc.) and then when the time comes to make a claim, our rates are raised. Why pay for insurance if you are going to be penalized for using it? Another common theme in this industry is that consumers who do not make claims or abuse the system are assessed for those who do. Its frustrating at best, but what are we as consumers to do?

    While I understand what Progressive Insurance Company is attempting to do here, it appears that this tool is merely just a gadget that Progressive is trying to promote in a market where there is heavy competition. I mean, what is this device truly assessing? As an insurance consumer, I would rather pay more for insurance then support one of the major carriers who finds it necessary to create niches and trickery to get you to sign on. After all, if I want to drive at night, or apply my brakes why should Flo give a damn?

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  9. Amidst a generation in which we are swimming in technology, we need to be careful as to not drown ourselves in it. I definitely feel as if this is another one of those areas in which technology has gone too far, and is invading our personal space. There are many factors for which insurance companies determine and set insurance rates. Factors such as; age, employment status, marital status, educational level, and credit ratings are all factors that have nothing to do with driving habits, history and experience. In an age in which we are hypersensitive to discrimination, I personally cannot believe that these practices not only exist, but are widely accepted and utilized in this industry.

    The insurance industry is one that has always gotten under my skin. We pay through the nose to insure just about everything in our lives (home, auto, life, boats, jewelry, etc.) and then when the time comes to make a claim, our rates are raised. Why pay for insurance if you are going to be penalized for using it? Another common theme in this industry is that consumers who do not make claims or abuse the system are assessed for those who do. Its frustrating at best, but what are we as consumers to do?

    While I understand what Progressive Insurance Company is attempting to do here, it appears that this tool is merely just a gadget that Progressive is trying to promote in a market where there is heavy competition. I mean, what is this device truly assessing? As an insurance consumer, I would rather pay more for insurance then support one of the major carriers who finds it necessary to create niches and trickery to get you to sign on. After all, if I want to drive at night, or apply my brakes why should Flo give a damn?

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  10. It was great to hear about this snapshot since I had thought about trying it before. It was nice to know that they are not able to track your GPS but just the speed you are traveling. The fact that it beeps when you do something wrong would be irritating to me also. In this case, it makes sense for insurance companies to utilize a device like this. This enables to company to know how much of a risk the driver will be. If someone has this device in their car for six months, it’s a great time period. If a driver is going to be cautious when this is in their car, it will be hard to keep up that driving for so long. It was also surprising that it matters what time of day you drive the car, I guess driving in the dark is an insurance risk.

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  11. I believe time is the biggest thing, we need to value it more than anything else, I consider myself lucky that I selected Forex trading as my profession, I feel blessed to be with OctaFX, it’s an outstanding company with so many great benefits that helps me trading well, I really enjoy their low spread which is just 0.2 pips while there is also massive rebate program where I am able to earn 50% back on all trading orders including the losing trades too!

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  12. The concept of Snapshot from the insurance company’s point of view is valid as they try to extract information about driving behaviors which would otherwise be unavailable, their way of trying to mitigate the hidden actions of their customers. What’s interesting to me is how little of the information they collect is actually being used as a factor in the customer discount. The stipulations alone in make it difficult for customers to come out ahead although the main purpose of the device is to encourage safer driving habits. With the fine print pointing out the people who benefit the most are those who drive less than 30 miles a day in off peak hours automatically diminishes the discount market and turns Snapshot into a profit earning scheme for Progressive.

    Knowing what I know now, I would not use Snapshot and would encourage those I know to look hard at the facts before doing so. I consider myself a safe driver but would not meet the qualifications simply based on my work commute alone, a factor that won’t change unless I change jobs.

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  13. Progressive’s Snapshot records mileage, times when driven, and driving style, usually measured by hard braking. One positive aspect of signing up for the program is an initial 10% discount followed up by a potential 30% renewal reduction in rates. But if a driving style is considered risky, then the insured could experience a 9% increase in his or her rates.

    The Snapshot is an attempt to answer the problem of adverse selection where hidden information would be made available by observing the risk’s specific drivers face. In this situation, adverse selection and moral hazard are closely related. Insurance companies would be able to determine hidden actions by observing driving behavior. With moral hazard, there are marginal benefits and costs. As one buys insurance, the cost of getting into accidents goes down, resulting in an increase in accidents. Insured drivers drive less carefully, in part due to “risk abatement technology creating incentives for consumers to take more risks” (Froeb, McCann, Shor, & Ward, 2016). This technology creates false confidence.

    Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2016). Managerial Economics: A Problem Solving Approach (4th ed.). Boston: Cengage Learning.

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  14. I find this quite interesting. Haven’t really thought much about it before until now….While this particular blog is in the chapter 20: moral hazard section. I also feel like it would definitely fit into the Chapter 12: more realistic and complex pricing blog.
    First moral hazard:
    Using snapshot as a way to find out information about a customer actually gives Progressive a lot of information before the customer has even used the device. Most likely if you are willing to put this device in your car you feel that you are a fairly decent driver and would have no problem receiving the discounts. These are the people they want to insure. The ones that will pay their insurance premiums and most likely will never have to call upon the insurance company to pay out. It’s a win-win for them, they let the target market they really want come to them. It’s also a form of indirect price discrimination (the higher risk customers could still use this service).
    Its also a from of psychological pricing. Progressive is somewhat managing the price expectation, here is the reference price, if you are a safe driver we will give you a discount. We as consumers think we are winning which is what they want us to think. Some consumers would also see this as fairness. “it’s fair for them to make sure I am a safe driver if they give me a fair price”.
    Progressive really does have quite a racket going!

    Froeb, L., McCann, B., Shor, M., & Ward, M. (2016). Managerial Economics: A Problem Solving Approach. 4th ed. Boston, MA: Cengage Learning.

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  15. At first Progressive Snapshot program seemed a great idea for me. I consider myself a fairly safe driver. So for me the idea is, if I can save few bucks for being safe, why not? However there are some elements that comes into play before signing up for the snapshot. First, I am from NYC areas. Very congested and busy traffic pattern at any given time of the day. So no matter how safe I drive there always a chance of hard breaking and sudden acceleration due to other driver’s behavior. Hard breaking and sudden acceleration are flagged by the snapshot device. Therefore although I drive safe, I will be flagged as unsafe driver. Other insurance providers have similar incentive program without any monitoring device which is best fit for me. Another factor contributed on my decision to refuse snapshot device is the privacy. I am strongly against providing my driving history to anybody. Progressive may potentially store my driving history data for their business purpose. There is a great risk of cyber security breach and having my driving history fallen into wrong people’s hand. The hackers can use these data to identify my home, my work, my wife’s work, and my children’s school locations. Over all I decided not to participate in this program because the rick is higher than gaining financial incentives.

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