California Gives Insurers Green Light for Pay-As-You-Drive Auto Policies

Californians will soon be able to purchase pay-as-you-drive automobile insurance, as the final regulations have been approved.

The regulations regarding pay-as-you-drive, which was originally proposed by state Insurance Commissioner Steve Poizner a year ago, were approved by the Office of Administrative Law last month.

“Pay as you drive is an innovative way to give California motorists financial rewards for driving less, leading to lower-cost auto insurance, less air pollution and a reduced dependence on foreign oil,” said Poizner.

It is not exactly clear how many insurers are going to be interested in offering pay-as-you-drive policies, which allow consumers to buy insurance based on their actual, verified mileage, rather than estimated mileage.

Sam Sorich, president of the Association of California Insurance Companies, said he believes interest is strong. Companies are always looking for a “new competitive tool,” he said. And, “The companies attract customers by offering a lower price.”

A spokesperson for Mercury Insurance said the company has no concrete plans to offer a pay-as-you-drive at present, but intends to look into the possibility.

Progressive Insurance is “evaluating how MyRate could work in the state,” said spokeswoman Susan Rouser. MyRate is Progressive’s mileage-based program available in other states.

She also said that in the states that have MyRate “one in four eligible customers” opts for the mileage-based plan.

According to the Department of Insurance, if a driver elects to purchase a pay-as-you-drive policy, the insurer would have several options to verify the number of miles driven. The insurer, or an agent or vendoer, could read the odometer, or the insurers could accept self-reporting, or a device could be placed inside the car, as Progressive Insurance already does in states where it offers pay-as-you-drive.

The regulations do not allow insurers to use a technological device to monitor where a person drives.

The final regulations include:

• Explicit authorization for insurers to offer a price per mile, or prepaid mile option for drivers.
• The option for insurers to offer mileage verification policies instead of or in addition to mileage estimation policies.
• A requirement that any insurer offering a pay-as-you-drive plan must specify the exact types of mileage verification it will accept.

The use of location data is still prohibited for most purposes. However, insurers and motor clubs are not prohibited from offering optional devices to drivers to identify the location of the vehicle for purposes of providing 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 coverage,

California could avoid 55 million tons of CO2 emissions between 2009 and 2020, which equals taking 10 million cars off the road.