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U.K. insurer computes pay-as-you-drive rates

By factoring route, time of day, age of driver, and so on, Norwich Union promises to reward the best drivers with lower premiums.

As far back as 2003, word got out that U.K. insurer Norwich Union was working on a pay-as-you-drive, in-car "black box" device.

Early suppliers emerged, including IBM and Orange, for the telematics software and network coverage, respectively, and Intec--a company better known for writing billing software for telecommunications companies--also came onboard.

However, with in-car devices and customers now numbering more than 100,000, the kind of serious number crunching that needs to be done is based on software from data warehousing stalwart Teradata, an independently NYSE-listed company since the start of October.

The idea is simple in theory--though tough to pull off on a second-by-second basis.

By tracking vehicle journeys, taking into account factors such as route, time of day, braking, age of driver, and so on, Norwich Union promises to be able to reward the best drivers with lower insurance premiums. It maintains this doesn't equate to losing customers paying the highest premiums. These individuals tend to call on their insurance more often and lead to lower margins--far better to leave them to the competition.

Tony Lovick, pricing actuary at NU, said a trial using GPS-based IVUs (in-vehicle units) provided by Trafficmaster began in November 2003 and finished 11 months later. It involved 5,000 devices, 8 million journeys, and 15 billion journey points. The journey points were represented as dots on a map when a vehicle checks in with NU's central computers--in this case a mainframe--every few seconds.

The pilot database had to deal with the creation of 20 million rows every day.

"At 100 times that scale, we couldn't imagine it working," Lovick said.

At that point, a member of NU's IT team tasked with taking this on to the next step asked several key questions, Lovick said, including what's the world's biggest database? What does Wal-Mart Stores use?

"All paths led to Teradata," he said.

The relationship began in October 2004 and from the beginning was driven by Teradata proving it could hit various markers, rather than NU trusting industry benchmarks.

"What we wanted was a solution to a business problem, obviously with some IT involved to achieve that," Lovick said.

Even on first looks, results were impressive. The Teradata box worked at a fraction of the cost of in-house servers running IBM's AIX flavor of Unix. There didn't have to be rewriting of code in and out of the data warehouse, and it all used efficient data types, for example, working mainly with integers.

There was "an outstanding level of throughput," according to Lovick. And because when NU has between half a million and 1 million customers signed up there will be about 1 billion rows of data generated each day, it worked on a compression technique (which it patented)--bringing down volume to 2 bytes per second of driving, per vehicle.

The data warehouse--somewhat analogous to billing that goes on in a highly transactional environment such as telecommunications companies (by time unit, by geography, and so on)--is among the biggest in the world and is attracting attention from all kinds of organizations.

The U.K. government is eyeing plans for a pay-as-you-drive system to replace standard road tax discs.

NU's Lovick doesn't rule out the project evolving further but says, for now, it is a three-way win situation. There is greater driver choice, with the potential for lower costs and greater risk awareness. There is greater safety on the roads for all. And society, as a whole, benefits from saved lives and less fuel burned.

NU has said it will make its SQL database scheduling code available to others as freeware.

Tony Hallett of reported from London.