Passing my driving test at 18 gave me a sense of great freedom. But, as I considered buying a car, the thrill was dented by the cost of car insurance. Because I was a new driver, I was seen as high-risk by insurers and my quote was exorbitant. I felt it was unfair to be evaluated as a driver based on the perception of the cohort I belonged to.
It's unfair to generalise and deem an entire group of drivers as dangerous due to grouping factors. Exceptional drivers exist in every age group and category, and insurance fees should reflect individual driving skills, not the driving skills of the group that one belongs to. To ensure fairness, we should focus on how individual drivers perform rather than the group they fall in, and DePIN will help us achieve this.
Although this feeling of injustice didn’t lead me directly to founding a Layer-1 blockchain for DePIN applications, the impact DePIN is already having on the automotive industry inspired me to consider how the concept could be utilised to make car insurance fairer.
The problem with current vehicle insurance
The current vehicle insurance industry builds risk profiles based on generalisations about the driving behaviour of all drivers. This approach often penalises members of an entire cohort based on the actions of a few, leading to disproportionately high premiums across the board.
The upshot is that motor insurance premiums are rising, even on the cheapest cars . The cost of insurance increased by 25 per cent in 2023, following a 50 per cent hike the year before, yet insurers still claim to be spending more on claims and costs than they’re raking in via premiums, and younger drivers are the most affected by this.
This approach is inherently unfair because it fails to account for individual driving behaviours and circumstances. For example, a young driver who practices safe driving habits and has no history of accidents is still lumped into a high-risk category simply due to age. This lack of personalisation penalizes good drivers and discourages safe driving practices, as they see no direct benefit from their responsible behaviour.
I asked myself: Is this all fair? But, more importantly, how can we solve this problem?
DePIN is a game-changer
The concept of DePIN aims to create decentralized infrastructures that empower end-users by providing more affordable services. A unique use case of DePIN is that it enables each participant in an ecosystem to collect and contribute data to the network and be paid for their data.
Using data assigned to individual users but preserving their privacy through blockchain cryptography and DePIN data sharing, enables insurers to develop more accurate assessments of driving risk for specific driverss. Unlike traditional methods that rely on broad assumptions, DePIN allows for a nuanced understanding of individual driving behaviours.
At the heart of this revolution is the “DePIN Data Logger,” a cutting-edge device that can be attached to a car to acquire data directly from a car's sensors. This logger captures multiple metrics such as speed, break reaction time and more, that can help companies analyse the overall behaviour of drivers.
A DePIN Data Logger is set to transform vehicle insurance by enabling a “pay-as-you-drive” model. Drivers can securely log their data anonymously, using an unique personal ID, which grants access to sharing their data and pay the insurance at the end of each journey. This system ensures that the necessary data for risk assessment and insurance calculation is collected without compromising the driver's identity or specific journey details.
By collecting detailed driving data, such as speed, braking patterns, and reaction times, insurers can develop a nuanced understanding of drivers’ behaviour. This data-driven method moves away from broad generalizations and offers a more equitable solution for determining insurance premiums.
The DePIN focus on privacy means that while comprehensive data is utilized for improving insurance accuracy, the drivers’ personal information remains secure. Drivers can enjoy the benefits of personalized insurance without fear of their movements being tracked or their data being misused . Additionally, by opting in, drivers can be paid for the data that they choose to share with third-party providers for uses beyond insurance, such as with car manufacturers, mechanics and parts providers.
The road ahead
The potential benefits of a data-driven approach are supported by various studies and data points: A report by McKinsey & Company highlights that telematics-based insurance products can result in more accurate pricing, reduced claims costs, and improved customer satisfaction.
Furthermore, data from the European Commission indicates that the implementation of telematics in vehicle insurance can reduce accident rates by up to 20%, as drivers become more aware of their driving habits and adjust their behaviour accordingly. These findings underscore the potential of DePIN to create a fairer and more efficient vehicle insurance system.
While the benefits of DePIN in vehicle insurance (e.g. where an automotive DePIN partners with an insurance provider) are clear, some challenges and considerations need to be addressed. One of the primary concerns is data privacy. Ensuring that the data collected by DePIN Data Loggers is used responsibly and securely is paramount.
To overcome this issue, you need a Layer-1 blockchain that is fully decentralized and device agnostic. An architecture where each user (node) retains control over their own transactions. This decentralized model ensures that users' data remains within their own custody, aligning with regulatory frameworks such as the EU’s GDPR privacy law.
Users have the ability to operate as full node operators, maintaining control over the data they contribute, as it’s stored locally on their own vehicle. This setup ensures their privacy and autonomy. When and if they choose to sell their car, they simply remove the access rights associated with their private key / password, and their data remains encrypted and no longer accessible.
As the DePIN narrative continues to gain traction, insurers are expected to embrace this technology and develop its potential. By doing so, they can create a fairer and more efficient system that rewards safe drivers and reduces the financial burden on those who are unjustly penalised under current models.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.