California Sets Rules for Pay-As-You-Drive Insurance

California has issued final pay-as-you-drive regulations, which will guide insurers offering consumers rates that are based on actual as opposed to estimated miles driven.

The regulations allow insurers to offer discounts to drivers who opt to purchase a mileage verification policy. Any auto insurance program, including a pay-as-you-drive program, must be approved by the insurance department before being sold to consumers.

If a driver elects to purchase a pay-as-you-drive policy, the insurer would verify the driver’s miles through a variety of methods, including odometer readings taken by the insurer or its agents or vendors, auto repair dealers, smog check stations; self-reporting by the policyholder, or a technological device placed in the consumer’s vehicle.

The final regulations explicitly prohibit insurers from gathering location data from consumers for automobile rating purposes through the addition of a technological device. The regulations would not affect existing multipurpose devices such as GM’s Onstar system or the use of a technological device as part of an emergency roadside aid program.

“Pay as you drive is an innovative way to create financial incentives for California motorists to drive less, leading to lower-cost auto insurance, less air pollution and a reduced dependence on foreign oil,” said California Insurance Commissioner Steven Poizner in releasing the rules.

Pay-as-you-drive policies were originally proposed in 2008.The regulations were last revised in August 2009. Revisions made to the regulations in August are reflected in the final regulations.

The regulations are set go into effect pending approval by the Office of Administrative Law, which has 30 days to act. As soon as they are in effect, insurance companies may submit plans to the department for approval.

The primary changes from the initially proposed regulations to the final regulations include:

Language that encourages insurers to offer a price per mile, or prepaid mile option for drivers.

An allowance for insurers to apply to sell mileage verification policies in addition to mileage estimation policies; or they may apply to sell mileage verification policies only.

Language that requires an insurer that offers a pay-as-you-drive plan to specify when filing with the department the exact types of mileage verification the insurer will accept.

The final regulations explicitly require insurers to offer and make available all mileage verification methods equally, to all applicants and insured drivers with a mileage verification policy.

The use of location data is still prohibited for most purposes. However, the final regulations do not prohibit insurers and motor clubs from offering optional devices to drivers to identify the location of the vehicle for the purpose of an emergency road service, theft service, map service or travel assistance service.

Last August, the Environmental Defense Fund estimated that if 30 percent of Californians participate in pay-as-you-drive, the state could avoid 55 million tons of CO2 emissions between 2009 and 2020, the equivalent of taking 10 million cars off the road. This would save 5.5 billion gallons of gasoline and save Californians $40 billion in car-related expenses.