There was a story in a recent Wall Street Journal about a new technology that lets insurance companies reward safe drivers with "deep discounts." Progressive and GMAC will be rolling out a digital back seat driver that tracks not just mileage – that’s old news – but how fast you drive, how hard you hit the brakes, and other habits.
It seems to me that we’re at the cusp of a profound change in the fundamental relationship between individual accountability and pricing. For a very long time, the well-behaved, consequence-aware Felix Unger segment was forced to absorb the costs of the I’ll-worry-about-it-tomorrow Oscar Madison segment.
But now, technology, along with an awakening in personal accountability, are changing that. It’s not a totally new idea, of course. Risk-based pricing is why life insurance companies charge smokers more money. And why property/casualty insurers charge those who have smoke detectors, less. But the ability to monitor behavior, and price your services accordingly, has exploded.
So what Progressive and GMAC have done is just one drive-by example of a trend that I will believe will take hold, finally subverting the legacy "one price fits all" model.
Imagine, if you will, when the power company starts charging you more for the juice you use during the day, than at night, to level out demand and keep their costs down.
Or when your Safeway purchases get electronically sent to your health insurance provider, and you get charged more based on your Doritos consumption habits.
Or when your video game hardware comes equipped with a Wi-Fi device that sends a signal to the school district telling them how much time your kids spend playing Halo – and punishing you with increased school taxes for your bad parenting.
Or when Apple puts a little bounce-detecting chip in your iPod so they can void your warranty the minute you drop it – or charge you more to warranty your next Apple purchase – because you’ve shown yourself to be so irresponsible. After all, why should prudent iPod custodians pay the price for the clumsiness or martini-fueled behavior of others?
We have grown accustomed to accepting an economic model which de-couples action from responsibility. We’re used to the idea of spreading risk across the population. But I predict that increasingly – in areas where costs rise or fall based on good or bad behaviors – it is an idea whose time is passing us by.