Mileage-Based Auto Insurance’

Rule makers over at TDI are huddling these days trying to decide how best to promul-gate regulations for the pending implementation of private passenger auto insurance by-the- mile for Texas drivers. The measure was born of HB 45 which essentially permits a demonstration program of sorts that enables insurers to offer mileage-based insurance as an option to the more traditional time-based insurance.

The concept seems fairly simple and straightforward. Insurance premiums would be based on miles driven.

The implementation of mileage-based insurance, however, has some tangles…how to monitor the odometer, how to maintain continuing coverage when insurance lapses in the middle of an emergency trip, and how to set up prepayment arrangements, among others. Then there is the challenge of regulatory oversight given the rate exemptions found in the law.

Progressive experimented using a GPS system for monitoring mileage (also when and where a car was being driven, which is not a part of the mileage-based plan in Texas), but results, including costs for the system, seem to be unclear.

Forty states now include information related to actual miles driven in calculating their automobile rates, although Texas does not.

Supporters contend mileage-based insurance would mean lower premiums for certain classes of insureds such as the elderly, low income drivers, women and the owners of cars driven infrequently. The National Organization for Women (NOW), which drafted the lan-guage for HB 45, maintains that as a class, women drive about one-third fewer miles than do men and that they tend to have about half the number of accidents. In fact, NOW may possess the most com-prehensive research on the entire mileage-based issue.

Supporters also say that mileage-based insurance and its promise of lower premiums would reduce the number of uninsured motorists in the state, which is now pegged at 20 percent-ninth highest in the nation.

Detractors meanwhile, think the concept is ambiguous and fraught with technical difficulties. They fuss at the terminology itself, maintaining that “mile-based rating” and “time-based rating” are both poorly defined and imprecise, giving rise to confusion and misinterpretation.

Also they contend that under mile-based rating, rates would be exempt from other rate regulation established under provisions regarding motor vehicle or automobile insurance and the benchmark rates established under the flexible-rating program. They say that in the absence of rate regulations and classifications, this could make the estab-lishment of a statistical plan, as required by the bill, could be difficult.

Although no carriers have yet signaled they will be offering such optional cover-age, at least one Texas county mutual insurance company, not regulated as to rates and forms, has offered per-mile automobile insurance on a pilot basis, according to one report. The concept of tying auto rates to usage is not new. A similar concept, pay-at-the- pump, has been debated for years.

The industry should be willing to give it a try.