Who will lead the project “Pay As You Drive” in Europe?

The recent report of Frost and Sullivan “Strategic Analysis of the European Markets for Telematics Based Car Insurance Systems ” outlines a horizon in which the big insurance companies will be the ones that will lead the development and implementation in the market of the project “Pay As You Drive”. 

It is a vision that I also defended during a lot of time, but now some things have change. Or better we should say that TomTom has given us the possiblitity to see that the things can be otherwise.

   Now, several technology companies see in the telematics the possibility to integrate an enormous quantity of services, as the parking, tolls, congestion-charge or combustible payment, traffic and navigation information for the driver or for authorities, anti-theft, recovery stolen vehicles, fleet management, information about maintenance or use of the vehicle, roadside assistance, information or entertainment services, emergency call, etc. Some of these services are already in commercial phase with mobile terminals.

 A key element in this development is the application “Pay as you drive” that would be offered as a business solution for any insurance company that wants it. In this way, the small national insurance companies, with good knowledge of the market would be able to take more advantage of the segmentation capacities that offer the PAYD  systems than the big multinational companies.

 To my way of thinking, this is the great question that will be solved in the auction of the patent EP0700009 next day October 31 by IP-Auction. 

Possibly, what happens to this patent will have a great repercussion and will restructure the sector of the insurance of the automobile in next years. Supposing that this time the auction has a buyer, big strategic movements to be relocated in this project will take place. But if the winner of the auction is a technological company, this means that it will have a great revolution.  

“Pay As You Drive” versus “Road Charge”

—– Original Message —–

From: s.minguijon@salvador-minguijon.es

To: XXXXXXX

Sent: Tuesday, June 26, 2007 4:46 AM

Subject: Re: “Pay as you drive” Information

Dear XXXXXX,

What we have learned in England is that the population rejects an obligatory system implanted at national level and that processes and stores information that can be used against the citizen’s interests.

This impedes the development of a centralized project of Road-Charge in a short term.

The solution that would be adopted is to implant independent systems to solve concrete problems of specially congested areas or to finance new investments in road infrastructures.

It is supposed that these problems are more and more serious and more extended and will consequently also expand the control systems.

The governments have to be sufficiently skilled so to implant technologies that can be integrated at national level later on.

The system “Pay as you drive” has to be implanted at national level and to avoid a radical social rejection, it has to be voluntary. It also has to be very careful with the information that processes because any scandal in its custody would have disastrous consequences for the project.

It seems to be that the citizens trust the custody of the information more talking about serious companies (overalls big financial entities) that in the own state.

That is to say that no matter how much technological and conceptually the projects Road Charge and Pay As You Drive are basically the same thing, the citizens will have different requirements and expectations about the same ones and its adaptation to these requirements implies, at this time and in certain countries, a significant technological difference between both projects.

Regarding the state of the projects “Pay as you drive” the only one really significant at the moment is the one of Norwich Union, the other ones are simply acquiring Know-How.

I don’t think that in Europe it will be more than 2 or 3 technological platforms that offer the application. In one of them will have a predominant role IBM, to constitute the other ones there are many companies of several sectors that are trying to structure a viable project.

I hope this information is you useful.

Regards.

Salvador Minguijón Pérez.
Interim Management.
+ 34 649 49 17 70
+ 34 976 59 58 71
Email: s.minguijon@salvador-minguijon.es
Web: http://www.salvador-minguijon.es

New auction round of patent EP0700009

The patent auction celebrated on May 15 in Munich, with an initial
price of 1.500.000 Euro, was void, as many companies could not register
on time, resulting in no bids.

In theory there were companies with interest in acquiring the patent
to structure their future projects in Europe, and there are also some
that need it to be able to market projects in which they have already
made big investments.

It is necessary to keep in mind that practically all the projects,
certainly all the significant ones, that are developing at the moment
are very likely to be infringing some of the claims of the patent, no
matter if they use GPS, GSM or another system of transfer of data, etc.

However at this stage, there was not enough participation in the
auction to sell the patent above the reserve price, leaving perplexed
the specialists in patents.

An important factor is, that the insurance companies don’t have
experience in the area of intellectual property and therefore find it
very difficult to make a firm decision. The impacts of ownig the
patent and even more, the possible consequences of not owning the
patent are very complex to assess.

“From some important companies in the field we have been told that
more time for due diligence is needed. This gives us a very good
perspective to successfully offer the patent in another auction
round.” says Boris Peters from IP Auctions.

Especially technology companies have to deal with the fact, that the
PAYD-patent provides protection for an application rather than nuclear
technical knowledge.

“The future owner of the patent remains to be announced, but it will
be.” says Mr. Peters. Please send a brief message to the following
Email if you are interested in the further auction process and receive
updates on the following steps: peters@ip-auction.eu, subject: “PAYD”

Reason to bid in the auction of the patent EP0700009, if you want to participate in the project Pay_As_You_Drive.

 The project “Pay as you drive”, together with the navigation systems are going to constitute the hardware support on which an exciting range of telematic applications will developed which will completely change the world of transport.

 The navigation systems have been winning market and the projects “Pay as you drive” are overcoming the first commercial tests. Both products are complementary and very attractive by themselves for a significant segment of the population.

 Its success will be catapulted by the urgent necessity to solve two enormous problems: the congestion of road infrastructures and the climatic change. Both problems demand unpopular sacrifices, but their short term consequences don’t leave our political powers another alternative than to face them in an urgent way.

Obviously this will mean an important increment in the telematics market but also a restructuring of the same one, as it will change from being a professional market to a great public’s market.

Consequently, not all companies will be able to handle this change. There are many companies that will have their place in the market because of their own merits, such as IBM, CERT, Siemens, Progressive, Norwich Union, etc. but the rest and majority of the companies will have to establish alliances, collaborations and will bet firmly for the development of these projects.

 One of the key dates is May 15, day in which the patent EP0700009 will be auctioned by IP Auctions GmbH in Munich.

This event will define the companies that will develop the project in the most important countries in Central Europe and this will also give them the possibility to participate at world level.

If the project is successful, many companies will try to avoid the rights corresponding to this patent and the owner company will have to defend them. The more success is predicted to the project, the more aggressive will be the attitude of the competitors.

If the patent is acquired in alliance with other partners, this defence will constitute a nexus of union of the organizations. Without any doubt, this defence will be coordinated and shared with Norwich Union, company with which the new owner will share the property of the patent in some countries.

 The competitors that don’t respect the rights of the patent will have two problems:

The insurance companies could not participate in a great project of this type without infringing rights of the patent and facing the possible consequences of litigation.

It is very difficult to avoid the derived rights of the patent EP0700009 as neither the elimination of some of their characteristics (especially those of more social character) neither an amplification of the same ones avoids the rights of the patent.

If your company wants to participate in some issue of the development of the system “Pay as you drive”, you will have to dedicate many efforts to it. These efforts can be based on your own intellectual property if you become the owner of the patent on May 15.

 If somebody else becomes the owner, you will have to depend on him as it will be the patent owner’s decision under which conditions you may enter the train of “Pay As You Drive”.

Now it is the moment to catch this train or to wait for the following. However the following train might not have seats, if there will be another train at all.

The endless crisis in the automobile insurance.

My experience in Spain, which I suppose is applicable to the rest of the countries of Europe and USA, is that the sector of the automobile insurance suffers a problem of uncertainty for about 15 years.    The repairs of the vehicles are more and more expensive because the technology is more and more complex, the manpower get more expensive too and the constant renovation of models influences very negatively on the cost of the spare parts. On the other hand, the amount of the compensations presents an unstoppable growth.    The consequence of all this is that the insurance policies are more and more expensive.    In a beginnig this is very positive thing for the sector, because it allows a bigger business volume and consequently the possibility of obtaining more benefits. The problem is that the permanent ascent in the costs implies a continuous adaptation of taxes that are not acceptable in the market.  On the other hand the guarantees of these policies are closely regulated, watched over and guaranteed by the own State. For this, it is very difficult to compete being based on the credibility and the trust, factors that traditionally were the key element of differentiation in the insurance marketing.    The traditional channels of sale, based on the personal relationships, have been obsolete; it is a too expensive product to sell it in this way.    The transparency of the market has increased, due to the existent easiness to obtain different offers and to be able to compare them using quick communication systems as the telephone or internet. This implies that the price is now unquestionably the main sale factor.      If we apply to this situation the pattern that Mcgahan proposes in its “Four Trajectories of Industry Change” we would see that our core assets are in danger and that therefore the sector is in a phase of “Creative” adaptation.    Until some years ago, it was assumed that the insurance companies could not influence in the risk of their clients, they limited to try to be guided to some markets with some certain characteristics and to defend their market by reducing their commercial or administration expenses or to fight to maintain an image of extraordinary service.    Those that opted for the first option are the “direct” insurance companies (Directline), creating a managerial concept that has spread in other sectors with the name of low cost activities.  But at the end there have been very few the companies able to stay in this market with a stable and reasonable margin of benefits. They have become a sector of specialized companies that have been able to adapt to work in a changing environment, at least for what is normal in the sector of the insurance in general.      But now the thing complicates much more, we have tools that allow us to influence in the risk of our clients and the handling of these tools have never been the nucleus of the activities of insurance companies. We would have entered in a phase of “Radical” change since as much our core assets as our core activities would have been obsolete.    In these cases Mcgahan recommends us to have a short term strategy, with an extreme supervision of the activities in the market, identifying it is the sector of the market that we can defend more easily.    My opinion is that in the market a system “Pay as you drive” will be imposed, just because it doesn’t seem that there is another alternative option that presents a similar compatibility with other big social problems that are demanding solutions in an urgent way. And although we will really have to wait to see how, when and who participates in this reorganization of the market, the truth is that nowadays we have tools that allow to make us an idea of how the events will evolve, a good reflection base is the studies of Christensen on the “Disruptive Innovation” and those of Rogers, about on the “Innovation Adoption Curve”.

Auction of the patent EP0700009, well-known as “Pay As You Drive” or PAYD.

I have dedicated 15 years to the “Pay As You Drive” project conception and I would have prefer to have the possibility to participate in the election of the companies that had to execute it in
Europe. 

Although I must also recognize that indeed I had this opportunity. I had the absolute trust in the team formed by Norwich Union, IBM and Progressive. It was the best in options not to develop the project at European level but at world level.    Due to different reasons, possibly worthy of a deeper study, this project was not developed as it was foreseen and Norwich Union had to restrict the aspirations to a local market.   

I would have liked to have a second opportunity to participate in the formation of another team, but the project had already created too many expectations, several companies had dedicated too many efforts in this market. In general, an enormous tension was found in all the involved companies, a tension motivated by the development of the technology companies and the lack of decision of the insurance companies that saw in the project too many uncertainties.    This evolution had the danger that at the end several projects were developed almost simultaneously and that the defence of the rights of the patent would be very complicated, practically impossible for a private person.   

This is the reason for which I have decided to offer it in an auction.    I would like this patent to complete the objective for which it was requested, that is to protect the efforts that the company acquirer will have to carry out for its commercial development.    I would also like the protection of this patent to give to this company the enough security to use in a shortly term the possibilities that offers this system to influence in the conduction habits and to reduce the risk of the users.    This is a not very commercial aspect of the project, but for social responsibility and for the own concept of what a patent is, it is a social debt that should not be omitted. It is comprehensible that at this time no company dares to outline this very openly, but it is quite shocking that some companies use the lack of this function to try to avoid the rights of the patent.  

The respect to the privacy in the projects “Pay As You Drive”

By the middle of the last year I maintained an exchange of opinions about how to guarantee that the information obtained with the project PAYD cannot be use for activities that can be prejudicial for the right of the privacy of the users. I am not allowed to publish our partner’s opinions. But I believe that my answer can be useful. It was with respect to the comment that I had published:

 “There has not been any project that has opted to process part of the information in the vehicle and to transmit only summary information. It is curious because this was the solution thought in the original project” 

 From: “Salvador Minguijon” <s.minguijon@teleline.es>To: “XXXXX” <XX>Sent: Sunday, July 30, 2006 12:25 PMSubject: Re: “Pay as you drive” Information  Thank you XXX: Do you allow me to publish your mail in my Blog?. Of course, hiding the mail address.  The insurance and technology companies consider that the information on the project “Pay as you drive” is strategic. Since then, they read and they follow the information but they don’t participate in discussion forums, unless they are promotional acts. Certainly never to talk about the problems that is what I try to foment, because I’m convinced that this helps to find solutions. Indeed your proposal seems reasonable, logic and simple.

 There are two special cases in where it is convenient to have detailed information: 

1º In case of an incident or accident, working as black box.  It is convenient for the insurance company to avoid frauds. It is an information which only has value until the user’s information is received and it is contrasted that both coincide. In that moment it could be eliminated. If in the incident personal damages have taken place. It is an important information to clarify responsibilities, but their storage would have to pass to police files or similar. Certainly they could not be in hand of the insurance companies. It is a very important information for traffic security investigation purposes. In this case it is only significant the information of the facts, the infomation about persons can be deleted.

2º During random periods of time, we must obtain detail information of the vehicle, because the following reasons:  The insurance companies can contrast this information with the one received from the client and to detect manipulation on the equipment. It is a temporary value information that, except for detection of a fraud, it can be erased immediately. The analysis of this information tell us of the conditions in those that we usually drive and with the one obtained in the accidents, should inform us about the exact risks that presents the specific behaviors. It’s not necessary a link with the user. One of the things that has surprised me a lot in this project is the ignorance that we have about the incidence of such simple things as the excess of speed or last of the trip on the risk. We know that it is present frequenly in the accidents, about we have many data, but we have very little information on the conditions in those that people usually drive.

 Regards                                                                                                           Salvador Minguijon 

Penetration mechanisms in the market of the projects “Pay as you drive”

In the numerous presentations that I have carried out on the system “Pay as you drive” I have been able to observe that my speaker, immediately, identified it as a product dedicated to the segment of the drivers who use very little his vehicle. 

Only people related with the sector of the automobile insurance were able to identify that, in fact, we were speaking about a very important segment of the market in its size and overalls in its profitability. As 10% of the vehicles make less than 5000 annual Km, they have a very low accident probability and they are those that contribute in a great way the biggest benefits to the insurance companies. 

It would be necessary to return to the first presentation of the report Distance-Based Vehicle Insurance Feasibility, Benefits and Costs: Comprehensive Technical Report (Todd Litman, VTPI) in the year 2001 so as to verify a proportional scientifically correlation among the distance traveled by the drivers and the probability of suffering an accident. 

The second deduction usually made is that if you pay the insurance in function of the use, the drivers would reduce the use of the vehicle. It is a topic on which they have being developing studies as the problems of congestion of the traffic increased, although the publication of 1998 Technical Methods for Analyzing Pricing Measures to Reduce Transportation Emissions continues being an important one. 

With the data of this study we can estimate that the users to whose is imputed the cost of the insurance in function of the use of the vehicle would reduce their kilometrage, and consequently their risk, approximately 10%. 

On the other hand a study of the VTPI also verifies that approximately 50% of the accidents have their origin in errors of the own driver. In
Spain the recent studies show taht the 34% of the accidents are because of a lapse of concentration, which is due most to the fatige and the 24% because of inadequate speed.40 % of the deaths didn´t have the seatbell fastened. 

The capacity of our system “Pay as you Drive” to identify this type of circumstances allows us to consent to another market segment; that of those drivers able to accommodate their speed to the state of the road, climatology, congestion of the traffic, etc, and avoiding to circulate in adverse circumstances that can imply to increase their risk. 

And it not only allows us to segregate this market of low risk but also gives us an influence actively tool about the habits and attitudes in the conduction, informing the user about the risk of their behaviors so that it can be aware of the same one and to reduce it. 

There is another consequence of the study of the TPI, approximately 25% of the accidents are as consequence of errors in the other drivers. The congestion situations, or certain schedules are specially dangerous. 

The first conclusions of the pilot tests of Norwich Union, information obtained on the registrations of 30 million days, is that the probability of a young driver of having an accident is 14 times higher at night in the weekend than in an ordinary day. We can also segment the market which does not use the vehicle under these conditions and segregate it of the general market. 

But, again we can glimpse the possibility to influence in the conduction habits so that it avoids the circulation under specially dangerous conditions as much as possible. 

In fact all this takes us to the obvious conclusion that this insurance system allows a radical improvement in the segmentation of the market identifying those users that present, for different reasons a profile of lower risk than what the global data statistics assign them. We are speaking about the best clients in the insurance companies, those that in fact are paying the costs from the accidents of a group of drivers of high risk, for the single fact of sharing with them spoils of age, sex, antiquity of the identification card of driving or the area in which they live. 

But what was not so obvious, is that besides improving the segmentation of the insurance radically, this policy can motivate the clients to take certain cautions that can make reduce its risk until 30%. 

For those people not familiarized with the sector of the insurance of the automobile, they should keep in mind that in the developed countries the cost of the circulation accidents are between the 1 and 2% of the gross national product and that 20% of the clients originates 80% of the costs. 

But the market is limited. This means that these clients that we segregate of the market, because we identify that they have a low risk, are the same ones that allow the insurance company to obtain benefits. In fact they are their more profitable clients. What would happen if an insurance company loses 10% of its most profitable clients? The consequence is that if they want to maintain its benefit, they would have to elevate the policy of the rest of its clients approximately 7%. 

But this increase in the rates makes that the potential market of the insurance “Pay as you Drive” is notably increased because it opens new possibilities to identify the most profitable clients in the insurance companies again. In fact the more expensive is the rate of the insurance, bigger the potential market of the system “Pay as you drive.” 

The system “Pay as you drive” is an element so radical of segmentation of the market that its success would imply a serious distortion in the market causing an unstoppable increment in the cost of the conventional policies, so the point that at the end of the transition process would end up to disappear or to only survive in marginal markets.

Positioning strategies of the technology companies regarding to the projects “Pay As You Drive.”

One of the particularities of this project is its capacity to activate the imagination of companies and people related with new technologies. A few companies of the management fleet or anti-theft electronic branch, have seen in this market a new opportunity for their already existent or lightly adapted products. 

These companies know very well how difficult the project is, they identify that their clients are the insurance companies and they only seek to offer them the physical support to execute their projects. This is a very important market to them and with a great capacity of grow, but they also know their own limitations. If the market reaches mass size, other better technologically adapted to this type of markets companies will substitute them, but this can last a dozen of years. An eternity for this type of companies which will use these years to develop other markets and applications. 

On the other hand, the capacity of the insurance companies to lead and to throw a product of this type is very limited, so they usually meet with very receptive clients but that don’t very well know neither what they want neither how they want it. What the insurance company follows is usually to “prove” and to acquire knowledge on this aspect. Practically all the insurance companies have already made “something”, always with the collaboration of an university and a small technology company. For desperation of these small companies most of the insurance companies don’t decide neither to discard the project neither to throw it, but they leave it indefinitely in stand-by, with the hope that the external circumstances dissipate some uncertainties. 

Some have had the luck, or ability, that the insurance company has created a special product to carry out this test. For example, to offer a discount to the clients in the insurance policy when they install a Black-Box in their vehicle. This gives information to the insurance company for its analysis. There are another group of technology and communications companies that aspire to play a predominant part in the future traffic control. For these companies the project “Pay as you drive” is only the first step to reach enormous dimensions and possibilities markets. But for the insurance companies, the projects proposed to them by these companies produce frenzy, they are two worlds with markets and concepts of time radically different. 

The insurance companies are not willing to put in danger their credibility, neither to invest in promotional campaigns if there is some uncertain in some aspect. The insurance companies assume the risk in their operations very well, although it is high, but they need to know the dangers that can face and to value the impact that can have in the results. They don’t admit the “we will solve it when the moment arrives”, because in many occasions it is the insurance company the one that has to pay the consequences. These technology companies identify the public administration as their client, to the one they try to offer their solutions about tolls, tax, infrastructures, information management regarding to traffic. Sometimes still including this project in a wider program such as communication Machine-To-Machine M2M. They don’t understand the insurance companies, and think they would be retrograde, slow and obsolete. 

In fact the insurance companies move in a very special market that is necessary to keep in mind to understand them: The most particular thing is that it is very normal and typical that the results of their strategic decisions take place with a retard of tens of years. In this environment it is normal that any decision should be thought and evaluated in its most minimum details before carrying out it. 

The second particularity is that the products offered are very limited, their possibilities to substitute products, to look for other markets etc. are minimum if we compare them to the industrial and even financial activities. The third is that their more important capital is the trust of its clients in its solvency. Activities that can transmit the sensation of economic weakness or failure cannot be allowed. 

In the last years the insurance of the automobile has developed in such a way that many insurance companies suffer it like a stone in their shoe. This market doesn’t have anything in common with the rest of its products and it seems even that every time is more different.  The technology companies clearly identify that the application “Pay as you drive” can be a wonderful entrance door to an entire group of future applications, but they aren’t being able to understand the insurance companies. In fact, it is surprising that the directors of these projects are not people that come from the sector of the insurance, without any doubt some would favour the development of these projects. Obviously this defect in the offer of the market has been detected by some technology companies and overalls technological consultants. They are trying to define projects guided towards the insurance companies, led by people that know the problem of this sector and are able to structure viable projects. 

Strategic Positioning of the Insurance Companies regarding the projects “Pay As You Drive”

The insurance companies have different attitudes with regarding to this project and although it is strange that even inside the own company this attitude is shared, we could classify them as the following: 
 
- There is a scarce number of companies that see in this product the opportunity to increase their participation in this market. They are usually companies with a great economic potential but a relative low market quota.

 They think that this product is applicable to most of the market, because of two very important characteristics. Its capacity to segment the market and to influence in the risk of its clients. Both characteristics will generate a big distorsion and crisis in the market.

 This attitude implies a great financial and management effort, so it is only probable in countries where there are patents that can protect this activities. So we refer to U.S.A, England, France, Germany, Italy, Spain and perharps in Canada.

 These companies are usually open to strategic alliances to share the development investments, using some synergies. But without losing the control of the project because they know that it will be very difficult to defend in the future the market quota that they have won with lot of effort, if they have to strategically depend on other companies.  
 
 
- Most of the companies of insurance see in this application a new possibility to segment the market, only interesting in concrete niches, as young drivers, vehicles of low use, etc. This can represent approximately a potential market of 10% of the users. Something more if it is possible to add to this product some additional features, such as roadside assistance, anti-theft, fleets management, information, mantenance, etc.

 These companies usually try to access to this market through agreements of collaboration with other companies that are already offering it or technology companies that already have it developed. They don’t usually understand the reasons why the technical solutions they are looking for are so expensive, complex and powerful because for what they need it wouldn´t be neccesary to use so many resources. However those that have deeply explored the topic have realized that the product has to be reinforced with the offer of other services that will increase its value for the client and that it should not require of the client’s action.

 Some companies, usually lively by small technology companies, have proven the project more or less seriously and they have been surprised about the enormous complexity of the same.

 Some are considering to use the services of a technological company that offeres a completely developed product. However they trip with two inconveniences, the first one is that they know that their competitors will inmediately take advantage of their commercial efforts to introduce the product, and the second is that in fact there are several companies that show off of having the product, but any has it in the market yet.. The technology companies are seen by the insurance companies like kamikazes.
 
- The companies that achieve benefits and have good penetration in the market, see the danger that their product suffers a decline phase. Their strategies are based on carrying out a technological surveillance, which allows them to adapt quickly to the market if it is necessary or to develop alternative products.

 The thing is still more complicated because in some countries there is political govermental to develop the project “Pay as you drive” that is due to the economic interests that moves around the “Road charge” project.

 Some of them, especially in U.S.A and England, have been surprised by the strategies of protection of the intellectual property of their competitors, in such a way that their reaction possibilities are very restricted. In some of these cases they have appealed to propose non aggression pacts.
- The companies that don’t achieve neither benefits neither a good penetration in the market, are horrified as the market gets complicated more and more. They carry out technological surveillance with the objective of leaving the market if they see clear symptoms that projects “Pay as you drive” will implant in the market.