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Bits Blog: Car Insurance by the Mile

December 5, 2012 by Leave a Comment

A road in Oregon, where an insurance company is selling auto insurance based on how much people drive.Andy Isaacson for The New York Times A road in Oregon, where an insurance company is selling auto insurance based on how much people drive.

We live in an age of information everywhere, and all that data is changing some of the most staid industries imaginable.

Yes, you’re reading about car insurance.

A company called MetroMile has started selling insurance to drivers in Oregon based on how many miles they drive. The business uses an in-car sensor that logs the miles, and sends a monthly bill, something like a utility meter. The company says that its ideal consumer, someone who drives 5,000 to 8,000 miles a year, can save 25 percent to 30 percent a year, compared with conventional auto insurance.

Other insurance companies already calculate rates in part on whether a vehicle carries a transponder, allowing it to be located or tracked. MetroMile seems to be taking a novel approach, however, in custom-building insurance based on individual behavior.

That is not all that MetroMile is after, however. The sensor, which is connected to cellphone networks, is also tied to a car’s on-board computer and can collect diagnostics data, emissions data, and other information about the condition and performance of an auto. Over time, the company plans to offer subscribers information about ways to drive more safely, get more miles to a gallon of gasoline, or judge better what is being fixed in their cars.

“By having people pay per mile, it also creates an incentive to drive less,” said Steve Pretre, the chief executive and cofounder of MetroMile, which is headquartered in Redwood City, Calif. “We can help people make lifestyle decisions they want to make anyway.”

The company is marketing itself first in Portland partly because Oregon’s regulations are more open to new products, and partly because Portland is at the forefront of a general movement toward more dense urban living, more bicycling, and more walking. If the company can secure 10,000 clients, Mr. Pretre said, the insurance part of MetroMile’s business should become “relatively stable and predictable.”

The company will charge a base fee of $30 to $60 a month per vehicle, which covers things like auto theft and insurance when a customer is driving another car. The mileage charge is expected to be 3 cents to 6 cents a mile, depending on such things as age and driving record.

Compared with traditional insurance, “at about 10,000 miles or less, a transition happens” that makes MetroMile’s pricing more attractive, Mr. Pretre said. That is because people who drive a great deal are riskier bets, simply because they are more often on the road, potentially at hazard. This gives MetroMile a potentially large market, since a relatively few drivers, perhaps 30 percent, are responsible for half of the nation’s driven miles.

The company’s other cofounder, David Friedberg, is an early Google executive who then started Climate Corp., a crop insurance company that uses large amounts of data about rain and heat patterns, plus soil quality and root depths of various plants to sell custom farm insurance.

Mr. Friedberg said the data from the cars could also be used to go into the warranty business, which because of poor information about specific vehicles, “are priced asymmetrically.” He says, “We’ll have a better idea of what is going on.”

The company, which was formed about 18 months ago with $4 million in initial financing, has 15 employees. Mr. Pretre said MetroMile, which is building up its own team of data scientists, does not plan to share driver data with third parties.

Article source: http://bits.blogs.nytimes.com/2012/12/05/car-insurance-gets-personal/?partner=rss&emc=rss

Filed Under: Business News Tagged With: , ,

Hedge Funds May Sue Greece if It Tries to Force Loss

January 19, 2012 by Leave a Comment

The novel approach would have the funds arguing in the European Court of Human Rights that Greece had violated bondholder rights, though that could be a multiyear project with no guarantee of a payoff. And it would not be likely to produce sympathy for these funds, which many blame for the lack of progress so far in the negotiations over restructuring Greece’s debts.

The tactic has emerged in conversations with lawyers and hedge funds as it became clear that Greece was considering passing legislation to force all private bondholders to take losses, while exempting the European Central Bank, which is the largest institutional holder of Greek bonds with 50 billion euros or so.

Legal experts suggest that the investors may have a case because if Greece changes the terms of its bonds so that investors receive less than they are owed, that could be viewed as a property rights violation — and in Europe, property rights are human rights.

The bond restructuring is a critical element for Greece to receive its latest bailout from the international community. As part of that 130 billion euro ($165.5 billion) rescue, Greece is looking to cut its debt by 100 billion euros through 2014 by forcing its bankers to accept a 50 percent loss on new bonds that they receive in a debt exchange.

According to one senior government official involved in the negotiations, Greece will present an offer to creditors this week that includes an interest rate or coupon on new bonds received in exchange for the old bonds that is less than the 4 percent private creditors have been pushing for — and they will be forced to accept it whether they like it or not.

“This is crunch time for us. The time for niceties has expired,” said the person, who was not authorized to talk publicly. “These guys will have to accept everything.”

The surprise collapse last week of the talks in Athens raised the prospect that Greece might not receive a crucial 30 billion euro payment and might miss a make-or-break 14.5 billion euro bond payment on March 20 — throwing the country into default and jeopardizing its membership in the euro zone.

Talks between the two sides picked back up on Wednesday evening in Athens when Charles Dallara of the Institute of International Finance, who represents private sector bondholders, met with Prime Minister Lucas Papademos of Greece and his deputies.

While both sides have tried to adopt a conciliatory tone, the threat of a disorderly default and the spread of contagion to other vulnerable countries like Portugal remains pronounced.

“In my opinion, it is unlikely that this is the last restructuring we go through in Europe,” said Hans Humes, a veteran of numerous debt restructurings and the president and chief executive of Greylock Capital, the only hedge fund on the private sector steering committee, which is taking the lead in the Greek negotiations.

“The private sector has come a long way. We hope that the other parties agree that it is more constructive to reach a voluntary agreement than the alternative.”

At the root of the dispute is a growing insistence on the part of Germany and the International Monetary Fund that as Greece’s economy continues to collapse, its debt — now about 140 percent of its gross domestic product — needs to be reduced as rapidly as possible.

Those two powerful actors — which control the purse strings for current and future Greek bailouts — have pressured Greece to adopt a more aggressive tone toward its creditors. As a result, Greece has demanded that bondholders accept not only a 50 percent loss on their new bonds but also a lower interest rate on them. That is a tough pill for investors to swallow, given the already steep losses they face, and one that would be likely to increase the cumulative haircut to between 60 and 70 percent.

The lower interest rate would help Greece by reducing the punitive amounts of interest it pays on its debt, making it easier to cut its budget deficit.

To increase Greece’s leverage, the country’s negotiators have said they could attach collective action clauses to the outstanding bonds, a step that would give them the legal right to saddle all bondholders with a loss. This would particularly be aimed at the so-called free riders — speculators who have said they will not agree to a haircut and are betting that when Greece receives its aid bundle in March, their bonds will be repaid in full.

Article source: http://www.nytimes.com/2012/01/19/business/global/hedge-funds-may-sue-greece-if-it-tries-to-force-loss.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

German Official Backs Tax Vetoed by Britain

December 13, 2011 by Leave a Comment

“A financial transaction tax would be positive,” said the foreign minister, Guido Westerwelle, emphasizing that if there were such a tax, “we would have to include all the European Union” and not just those members that use the euro.

His remarks were implicitly directed at Prime Minister David Cameron of Britain, who irritated his European Union colleagues at the summit meeting by vetoing proposed treaty changes in part because he felt they lacked safeguards for the future of the City, London’s financial district and a vital economic engine for Britain. Mr. Cameron’s actions left Britain isolated, and Mr. Westerwelle’s remarks suggested that the veto still would not insulate London from changes undertaken by other European Union members.

In an interview with the editorial board of The New York Times, Mr. Westerwelle also said the door was still open for Britain to join the new economic stability pact that Germany and all other European Union members are going ahead with regardless of Britain’s decision. “It is a standing invitation for Great Britain,” he said.

The idea of a financial transactions tax, a tiny levy that would be collected on trades of stocks, bonds and other types of securities and then used to help the economically disadvantaged, has attracted enormous interest in Europe. Nicknamed the Robin Hood tax, the proposal has been heralded as a novel approach for redistributing at least a small portion of the profits amassed by wealthy investors, a disparity that helped to energize the Occupy Wall Street movement. The proposed tax has an array of influential advocates, including the leaders of France and Germany, as well as philanthropists like George Soros and Bill Gates.

Mr. Westerwelle forcefully defended the outcome of the summit meeting in Brussels, which embraced Germany’s recipe of austerity and discipline for combating the economic crisis afflicting the euro zone’s troubled members — a crisis that has called into question the viability of the euro itself. Under the agreement, the euro zone’s 17 member governments will accept more oversight and control of national budgets, at the expense of their own sovereignty.

“From the German perspective, this is a debt crisis, not a growth crisis,” he said.

Asked about Western concerns that Iran may be close to building a nuclear weapon, despite Iranian denials, Mr. Westerwelle reiterated Germany’s position that a nuclear-armed Iran would be unacceptable. He also described the report issued last month by the International Atomic Energy Agency on Iran’s possible work on a weapon as “alarming.”

But he said it was premature to discuss new sanctions on Iran that would prohibit dealings with Iran’s central bank, saying that “sanctions only work well if many countries participate.”

He declined to discuss legislation approved by the United States Senate this month that would penalize foreign banks that engage in transactions with the Iran central bank by denying them access to the American market.

Article source: http://www.nytimes.com/2011/12/13/world/europe/guido-westerwelle-german-official-backs-tax-vetoed-by-britain.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,