Instead of Courage

I hosted a round table discussion today, Wednesday, 24 September 2008, at the offices of ITS America in Washington DC. Following are the notes I made to open that discussion.
I attended a breakfast speech yesterday morning, during which the Chair of the Greater Toronto Transportation Authority, Rob MacIsaac, described a new multi-year plan to revitalize road and transit infrastructure in the Greater Toronto Area costing multi-tens of billions of dollars.

I asked his view on protecting that investment in roads and transit with road pricing so that people would tend to use the new transit infrastructure and so that the new roads did not simply fill up with cars as they always do, thereby keeping a sustainable balance instead of returning once again to state we are in now.

His answer was: “"The sides of the road are littered with the bodies of politicians that made ill-advised proposals regarding road pricing."

He went on to say "transit needs to be put in first" citing the example of Livingstone putting buses in just prior to the London Congestion system going live.

But I believe there are many creative ways to introduce pricing at the same time we are providing new infrastructure. There are ways to ease pricing into place over such a multi-year span even if you are not putting in infrastructure. I believe there are ways to do this while retaining political support. I believe we must do this in order to shift away from the gas tax. That is what I will describe today, and that is what I would like this round table to explore.
There are now in the United States, in Europe, and in the world thousands of politicians, traffic engineers, legislators, environmentalists, analysts, bureaucrats, economists and thought leaders that know that our surface transportation systems are as unsustainable as they are critical. Some of us work in jurisdictions that are, in fact, in immediate crisis.

What is more amazing is that the vast majority of these thousands understand the problem and its solution. We understand that automobile use is incorrectly taxed. That what direct taxes are collected are insufficient. That large externalities are shared across all people including non-drivers. We understand that the fuel tax is a proxy for road use and as such its relevance to demand management is rapidly diminishing. As a funding source its efficacy slips monthly and as reminder that we pollute with our vehicles it is almost completely powerless.

Some of our thousands call for more roads to be priced – sometimes in small areas as in London or New York; sometimes in whole countries as in Netherlands or Slovenia. But most often, just another interurban highway where we can or where we must price.

But we know better. We know we need to shift away from the gas-tax. We know that is becoming more and more one of the sources of the problem rather than a tool for its resolution. We are beginning to clearly understand that the consumption that needs market pricing is the use of the road rather than the consumption of fuel. We know that as we move away from the gasoline and diesel-powered engine the gas-tax will fail utterly.

Nevertheless, a few days ago, I received an email from Robin Chase [founder of Zipcar], that said: "When I presented to the executive board of TRB [Transportation Research Board], and [market pricing] came up, they all concurred that: “People won't like it; hence their governors won't support it; hence we won't push it. We want to privatize roads so that someone ELSE will be responsible.”

What this says to me is that as our surface transportation systems become unsustainable, there will be no political will to solve it. Rather, we will sell off the problem.

I believe we have alternatives. These involve slowly addressing antiquated enforcement methods such as ticketing courier vehicles, outdated commercial vehicle registration technologies such as taxi plating, inefficient insurance regimes such as annual or monthly automotive premiums with pay-as-you-go forms of payment. Couriers can pay by the mile or minute for driving and parking in urban centers, taxis can pay commercial registration by the mile, so that a plate owner is not forced to run a vehicle 24 hours whether needed or not and so on.

As trust in anonymous GPS tolling technology’s reliability and privacy and as its cost drops, it can be used for parking payments, traditional tolling, and numerous new programs not otherwise feasible – for example tolling an urban center without cameras and RFID/DSRC gantries.

Building an installed base of road-use meters means that when the time comes to turn off the gas tax, an alternate system will be in place. It will be reliable, cheap, trusted and most of all actually understood. Approaching the problem this way, we can diminish the danger of “political suicide” without selling off all easy-to-toll roads, leaving an unaddressed congestion and funding problem for our city streets.


Senator Dibble Speaks

Sen. D. Scott Dibble, Chair of the Minnesota Senate Transit Subcommittee, gave the luncheon address for the 13th International HOV/HOT Systems Conference in Minneapolis on September 8, 2008. Sen. Dibble talked about how he got involved in transportation issues and gave his thoughts on congestion pricing and HOT lanes. His speech is posted on the Humphrey Institute's congestion pricing blog, here.

From Lee Munnich, Senior Fellow and Director, State and Local Policy Program - Hubert H. Humphrey Institute of Public Affairs University of Minnesota.


Long Live Norwich Union!

It’s old news by now that pay-as-you-drive innovator Norwich Union has withdrawn from the fledgling PAYD insurance market. Many were taken by surprise. Listening to spokesperson Erik Nelson explain why provides that perfect 20-20 hindsight for the rest of us. He also provides a fabulous insight into the value of this program. He still clings to one critical, false hope however. But let’s hear from Erik first. He is interviewed here by Traffic Technology International, and transcribed below for your convenience.

TT: Norwich Union's innovative telematics-based pay-as-you-drive insurance policy was withdrawn earlier this year because it was costing too much to operate, but as spokesman Erik Nelson reveals, the company plans to re-enter the market once economic conditions prove more favorable.

EN: What we did was we installed a box in their vehicles, a GPS-based box and that box tracks their movements, it tracks a couple of things actually. It tracks how far they were traveling, it tracks the time of day and it tracks where they were traveling - that is what type of road specifically they were on. The reason we are interested in a road – what type of road - is because we know for example that motorways are ten times safer than urban roads so we’re able to give you better rate on motorways than driving on an urban road which is more dangerous. We also know for example that driving at night, especially for young drivers is much more dangerous than it is traveling during the daytime, so we take in the time of day, we take in the road that you’re using and we’re able to give you an individualized pence-per mile tariff. Now based on that, [and] the number of miles you drive, you get your premium.

TT: Did you find that people actually did change their driving habits as a result of this policy?

EN: That’s a very interesting question. I think that’s very difficult to answer, because of course we didn’t know what they were driving like beforehand. What we did see was that people were driving over the time gradually a little bit less, I think they were very conscious of how far they were driving. The big thing is not about how far they were driving, though. It’s about the times of day and they types of roads they were using. We definitely saw safer driving behavior. As a result our claims reduced by more than 30% which is a staggering statistic and a huge boon for road safety. But when you are able to incentivize, for example, young drivers not driving during the most dangerous times of day for them, when they are 10 times more likely to be involved in an accident at night, 14 times more likely to be involved in an accident at night on the weekend. And you incentivize them to take the taxi, take public transport or whatever when they go out during those times you see accidents drop more than a third, you’re really on to something in terms of roads safety.

TT: I understand that renewals were really quite high on this, the policy seemed to be popular, yet you didn't carry it on from the Spring of this year.

EN: That’s correct. The retention rate was at or above 90% during the time that we operated the policy, and feedback from customers was overwhelmingly positive. This is probably because customers were saving around 30% on their premiums. So we paused it because, simply put, because the economics of the policy don’t work out for us right now. We thought that telematics was going to be a lot further along than it actually is. We thought that motor manufacturers would be installing telematics devices in the vehicles that they are making at the point of manufacture, but that did not come to be, and certainly not on the scale that we imagined. So instead of piggy-backing our little insurance policy on the back on existing piece of kit in a car, we were actually forced to provide the kit and install the kit ourselves which from an operating model point of view becomes very expensive and that is why we have temporarily withdrawn.

TT: Is it the case that the motoring industry just isn’t ready for this yet?

EN: I don’t know if it is the case of whether the motoring industry is ready for it. You’d have to speak with the motor manufacturers about that. Certainly it’s the case from our perspective I think we were just a little bit ahead of our time. I think we as a company still have faith that the telematics industry will continue to evolve and at some point the time will be right for us to re-enter the market because their will be more telematics devices in vehicles and it will be much more sustainable for us to operate a policy such a pay-as-you-drive and we look forward to re-enter the market in a very good position at that time.

TT: Do you foresee that technology like that is very much going to be a key part of insurance policies in the future, like red-light boxes that stop cars maybe from driving over red lights, that sort of technology’s going to be key?

EN: There are so many different ways that this technology can be used. As an insurer, our main objective is to find a way to calculate a premium. I think that is what pay-as-you-drive did incredibly cleverly and incredibly well and that is calculate a usage-based premium that motorists found fair and transparent in a way that has never been done before.

TT: Erik Nelson from Norwich Union. If you have any questions about this feature contact tt@ukintpress.com.

The false hope Erik Nelson clings to is that the automotive manufacturers will soon pre-install the telematics he needs. While this is technically possible, it is unlikely – mostly because we do not yet know everything about how we want these telematics to behave. To do insurance-only is an unworkable business model – as Erik can attest. We’ll need a whole fleet of cross-subsidizing services to make the pre-installation calculus work out. Even a package like OnStar causes the new-car purchaser some pause before adding it to the invoice. We will soon be paying for road use via GPS, which itself remains unreliable for most telematics manufacturers in built-up cities. And why not handle parking while we’re at it?

The assumption that we will record GPS tracks and process them off-board will hit a privacy wall. The counter assumption that we will pay everything on-board raises equal security concerns. The ISO standards to guide all this were completely scrapped a couple of years ago after nearly a decade of work. Only some components of the new edition, which I estimate to be about ¾ complete, will survive a hard privacy review in the EU and the US. What little the privacy advocates leave intact of the new standard will cause more hesitation on the part of the automotive manufacturers.

I believe all this will serve to postpone the time when the automotive manufacturers will provide a “whole product” that an insurer could simply “piggy-back” on. The telematics market segment that will handle financial transactions (insurance, road-use, parking), must be “liability critical” – in other words, it must be critically reliable and repeatable – something we call “financial grade” GPS. The technology to do this is not the same as navigation grade GPS and the automotive manufacturers know this.

This, and the fact that there is already a world fleet of well over 500,000,000 vehicles that will need an aftermarket fitting, informs my prediction that the early years of PAYD will based on self-installed, specialized, “financial-grade” systems that can be purchased anonymously, monitored without knowing the vehicle or owner ID and without data retention, and that also provide a couple of other payment services such as road and parking tolls.