Greater Greater Washington

Rewarding urban living in mortgages and insurance

For over 50 years, the U.S. economy has shaped itself around suburban development and car-centric life. From mortgages to insurance, companies assumed that the standard household occupied a detached single-family home and drove to work. This built-in bias meant that even as Americans, from young singles to empty nesters, started to crave walkable cities once more, the economic deck was stacked against city life, keeping the middle class largely out of the cities.


Transit is no longer just for creeps
and weirdos. From a 2003 GM ad.

Now, the market is responding to the recent demand by creating products tailored for urban living. Pay-as-you-drive insurance and location-efficient mortgages both give people credit for the driving they don't do and shouldn't have to pay for.

Progressive Auto Insurance is being, well, progressive by offering the nation's first pay-as-you-drive policy.

Drivers who sign up for MyRate will install a small wireless device in their cars that transmits to Progressive not just how many miles they drive but also when those miles are driven and, to some extent, how they are driven: the device measures the car’s speed every second, from which Progressive can derive acceleration and braking behavior. Which means that Progressive will not only be able to charge drivers for the actual miles they consume but will also better assess the true risk of each driver.
According to Freakonomics authors Levitt and Dubner, between pollution, congestion, and damage from auto collisions create negative externalities to society of $300 million a yeareach time someone drives a mile, society pays an average of ten cents beyond what the driver is contributing back in gas taxes or tolls.

People who commute by transit, foot, bike, rollerblade, scooter, or carpool save a lot of money in transportation costs (and more with PAYD insurance). Why not account for that in determining mortgage qualification? Lower expenses mean someone can reasonably afford a higher mortgage. That's the idea behind the Location-Efficient Mortgage, which are available so far in Chicago, Seattle, Los Angeles, and the SF Bay Area to home buyers who purchase homes in efficient locations.

It takes time for the economy to shift to accommodate new consumer demand, but it does. And the consumer demand is there for more walkable, transit-oriented urban neighborhoods. Not everyone wants to live in a townhouse with a corner grocery nearby, but more people do than can find safe, affordable townhouses. As long as cities allow more to be built, insurers and mortgage lenders will adapt.

David Alpert is the founder and editor-in-chief of Greater Greater Washington. He worked as a Product Manager for Google for six years and has lived in the Boston, San Francisco, and New York metro areas in addition to Washington, DC. He now lives with his wife and daughter in Dupont Circle. 

Comments

Yeah no thanks, that’s a little too much big brother for me. The last thing you want is to have an insurance company to have is more information on your driving habits. This will give them even more excuses just to jack your rates up. You can see this in their roadside protection plans, use it even once and your are determined to be an at risk driver and your rates goes up. Plus the idea that the more you drive the more at risk of an accident you are is false. In fact, over 50% of accidents occur within 5miles of your house and it’s less than 25% 15 miles or over.

http://www.chase.com/cm/cig/advice-and-planning/page/june02caraccidents.html

The idea is nice, but the business environment of the insurance companies will destroy it's intent.

by RJ on Apr 23, 2008 8:17 am • linkreport

Not just driving habits, either, at least potentially. Tell me there's not going to be a GPS in there. And tell me that insurance companies aren't going to see a potentially lucrative business opportunity selling that data. Now you can be tracked in real life the way you're tracked online! Sweet!

by JC on Apr 23, 2008 10:24 am • linkreport

I'm sympathetic to the privacy concern, but you can always choose not to get this type of insurance. Also, having information about who is driving allows us to price goods based on how much people drive, whether congestion pricing or insurance. We need to protect privacy, but in a way that doesn't make it impossible to solve problems. How about stronger privacy laws that stop companies from selling data like this without the person's consent?

To your second point, just because most accidents occur near the home doesn't mean it's not an increased risk to drive more. People who drive more also are driving near the home more often. Maybe the price shouldn't go up linearly by miles, but someone who commutes every day (and is therefore driving near their house at least twice a day) is definitely more likely to have an auto accident than someone who walks to work and drives only once a month to go out of town.

by David Alpert on Apr 23, 2008 3:51 pm • linkreport

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