California Gets Access to Fourth Pay-As-You-Drive Program

California regulators have approved a new pay-as-you-drive (PAYD) program they say will be good for both the environment and policyholders’ pocketbooks.

OdometerThe program from Civil Service Employees Insurance Company (CSE) will allow policyholders to qualify for discounts by driving fewer miles than estimated, as do PAYD programs already offered by several other insurers in the Golden State, including AAA and State Farm.

Unlike other programs, however, CSE will reward customers for low mileage based on the exact number of miles they drive between 5,000 and 12,000 miles, rather than using wider mileage tiers to calculate premiums. The State Farm PAYD program, for instance, uses 500-mile tiers up to the 19,000-mile mark.

“It encourages you to drive less,” CSE spokesman Matthew Hull said Thursday in a phone interview.

Under PAYD programs, coverage providers verify policyholders’ annual mileage instead of relying on estimates from those customers. Insurers reward motorists who log substantially fewer miles each year.

California has long required insurers to factor in yearly miles driven when determining how much to charge for coverage. But until late last year, companies had to depend on policyholders’ rough guesses of how far they would drive. Insurers awarded discounts based on mileage ranges of, for example, 0-7,500 miles and 7,500-plus miles.

State regulations approved in 2009 paved the way for insurers to offer voluntary programs that include the ability to ask for mileage verification and to institute smaller mileage tiers.

The CSE program is scheduled to begin in January and will be offered exclusively to the company’s California auto insurance customers by CSE Safeguard. It offers policyholders two options for mileage verification.

They can either track miles by installing a telematics device—which is free to anyone who signs up and plugs into a vehicle’s universal port—or they can report their mileage for each vehicle via the company’s website.

The company may use an agent or odometer information from a smog check to verify reported mileage, Hull said.

CSE customers will estimate their miles for the year before each annual policy period and then CSE retrospectively rates them based on how many fewer miles than estimated they drove.

“So if you’re driving less miles than you estimated, we’re basically going to send you a check for that (unused) mileage,” said Hull, who added that customers could see $50 to $100 back at renewal time.

The voluntary program will be available for annual policy terms, with minimum mileage of 5,000 miles. Customers will also get a discount for signing up that will likely be about 2 percent to 5 percent, according to Hull.

If CSE customers exceed their mileage estimates “then we’re basically going to tell you how much you owe us,” Hull said.

Those who log more miles than expected would likely be placed in another program that does not verify mileage, according to Hull. But he said the program should appeal mainly to environmentally conscious people and others who don’t typically drive much daily, so that is not expected to be a major issue.

California Insurance Commissioner Dave Jones said the CSE program will benefit both the environment and policyholders.

“This environmentally conscious program unites economic savings with emissions reduction in an effort to reduce traffic congestion and greenhouse gases,” Jones said in a statement issued earlier this week. “I encourage more insurance companies to start offering pay-drive options to their policyholders.”

About Gregor McGavin
Gregor McGavin is an award-winning journalist who has reported across the country for such publications as The Associated Press, the Arizona Republic, the Pittsburgh Tribune-Review and the Press-Enterprise.

One Response to “California Gets Access to Fourth Pay-As-You-Drive Program”

  1. ANNIE ANY
    22. Jan, 2012 at 2:02 am #

    BEWARE! AAA AGENTS ARE LOWERING MILEAGE TO SELL POLICIES. INSURED’S ARE HIT WITH LARGE INCREASES ON RENEWALS! THIS LETTER WAS SENT TO AUTO CLUB CEO THOMAS V. MCKERNAN & CA INSURANCE COMMISSIONER, DAVE E. JONES, ON NOVEMBER 17th, 2011. THEY HAVE LARGELY IGNORED THIS LETTER!

    November 17, 2011

    Re: The Auto Club of Southern California’s Verified Mileage Program

    A Misrepresentation by AAA Agents Regarding Insurance Premiums and Rates

    Thomas V. McKernan
    CEO Auto Club Enterprises
    3333 Fairview Rd
    Costa Mesa, CA 92626

    Dear Mr. McKernan:

    The Auto Club’s Verified Mileage Program or Pay as You Drive Program was approved by the Insurance Commissioner earlier this year and was touted as a way to save consumers money by lowering the price of insurance when they drive less. In theory, the program has its merits by discouraging unnecessary driving by motorists. In reality, the Auto Club’s implementation of the program has many troubling flaws.

    Auto Club agents are pressured to forge insurance documents and manipulate insurance premiums in exchange for more phone duty, better phone calls, better leads, paid vacations, better treatment by management, a trip to the Bahamas, and to maintain their employment. Ethical agents are threatened and harassed to quit or accept their fate that they will be terminated for low performance. High production is looked at as a virtue and not scrutinized as agents submitting fraudulent business. Low production is looked at as laziness, incompetence, stupidity, and reason for punishment and termination. Lead distribution is such that high producers are given more leads and low producers are given even less leads insuring a huge gap between high and low producers. It also skews the policies written with integrity verses policies that are problematic.

    Rather than estimate the accurate or actual mileage for each policy, agents are lowering initial mileage readings when starting a policy, which lowers the annual mileage category and thus lowers the annual premium, but just for that year. Agents that use this practice to quote will sell more policies because the premium will be much lower than it would otherwise be. Agents can accomplish this because only about 25% of all policies require inspections with an odometer reading. Agents at the district offices are allowed to inspect their own vehicles. They omit odometer readings intentionally and enter any figure they want to sell the policy.

    All this would be a moot point; however, with the Verified Mileage Program insureds are required to submit their exact mileage reading upon renewal of the policy or be removed from the program. Through no fault of their own, many Auto Club insureds will have renewals with extraordinarily higher mileage depending on how much the agent lowered the original mileage and how many miles were driven during the current policy period.

    An example to illustrate the wrong that is being perpetrated on unsuspecting consumers: If I start a policy today and my current annual mileage is 15,000 and I bought the car exactly a year ago, with zero miles, the mileage category should be 15,000 miles or less. The agent knows if he quotes me at 15,000 miles per year I won’t buy the policy so he enters my mileage at 5,000 and my premium is much lower than what I am paying now so I switch to the Auto Club. I’m happy until my renewal arrives next year. The premium almost doubles in price. When I am asked by the Auto Club what my current mileage is next year, it will be 30,000 because if you remember I was driving 15,000 miles per year and my vehicle had 15,000 miles at the inception of the policy. The Auto Club is going to rate my renewal at 25,000 miles per year because my agent entered 5,000 as my current mileage at the time I purchased the policy. The renewal will encompass the miles that were deficient from the prior policy (10,000) and include the actual miles driven (15,000). My annual mileage rating goes from 5,000 per year to 25,000 per year because it looks like I drove all those miles in only one year. I really didn’t drive that much but that is the way the miles are calculated. That’s a big increase. If I complain, I am told by the representative that I am a liar and can bring in a service receipt in 30 days to lower my mileage to where it should be. Now that is customer service! Some in the company may say the miles are being accounted for over two years so it really doesn’t matter. This is all being suppressed by the sales department. My view is the original sale would not have taken place and the premium manipulation has put the insured into a situation where the policy is written under false pretenses and can be voided by the insurance company.

    The agent doesn’t care because all this stuff will happen a year later and he sold a policy he normally would not have. The Auto Club praises the current agent and lavishes him with more phone duty, pays him more per policy, and sends him on paid vacations because he is a top producer and gets away with doing this on a daily basis. Nobody seems to notice except our insured. On the renewal the policy is way over priced and the insured non-renews or has to fight with our customer service department that won’t believe him. The insured doesn’t know exactly what happened because they did not see the fraud that was committed against them. The fraud only becomes apparent on the renewal a year later. The insured has lost all longevity with their prior carrier because they are now with the Auto Club. Their current renewal is too high so the insured must shop for insurance elsewhere.

    The only way to eliminate the out right fraud and corruption at the Automobile Club of Southern California is to require inspections with odometer readings for every policy written. Currently, inspections are not required for “liability only” policies or insureds that have prior insurance with similar coverage. Also, agents in the field can perform their own inspections and omit the odometer photo on purpose! This lack of accountability on new policies opens the door for agents to commit fraud and abuse on the unsuspecting public. This is a “verified” mileage program so you must “verify” the mileage, or otherwise this is a sham and should be abolished. Also, allowing the same agent that writes the policy to inspect the vehicle is a flagrant conflict of interest. The inspection should be completed by a manager or impartial third person at all levels of the organization and at all times include a photo of the odometer.

    There should be a separate disclosure just for mileage in the insurance documents that require the exact mileage for each vehicle to be listed at the inception of the policy. The insured should be required to sign the disclosure verifying the exact mileage for each car on the policy. There should be an explanation that this figure will be used to determine next year’s mileage calculation. Unbelievably, this is not now required. The mileage would therefore be verified by the insured, by an inspector, and by the agent. The current system allows for only the agent to verify the mileage and the agent has a conflict of interest to be trusted with that. Currently the only disclosure that references anything about mileage is on the Coverage and Limits page and this only lists what the annual mileage is calculated at. This is misleading if the insured doesn’t know what their real annual mileage is or how it was calculated. Most insureds don’t know what they drive and are influenced by the agent. When you ask an insured how many miles they drive, they most likely under estimate. This figure should still be listed in that location but the mileage disclosure should list the exact miles at the inception of the policy. There is a culture of corruption within the Auto Club of Southern California and drastic measures are needed for true change to be forthcoming.

    The Auto Club will defend its position by stating it has systems in place to catch fraud and abuse and to some extent they do. However, the only way to avoid agents from lowering mileage is to educate the insured with a mileage disclosure that must be signed by the insured and the agent. It should explain how this figure will affect the rating for the following year. When only some of the policies require inspections, and this can be manipulated by field sales agents, then there is no effective process. When the agent knows in advance which policies will require an inspection the agent can make up the mileage on selective policies to, “get the job done”. The Auto Club will also reference the fact that conversations are recorded and can be audited for integrity. The agent knows this and never asks the insured what their mileage is. They’ll only make reference to how much the insured’s commute is and make up a figure that is statistically consistent with the commute, albeit on the low end. The policy ends up being a fill in the blanks bonanza for the agent.

    Some managers look the other way and others go further by processing business that has serious errors. In fact some managers were required to send policies through processing a second time to verify corrections were completed because the managers couldn’t be trusted to verify the corrections were actually completed. This company needs managers to watch the managers. But when the processing team can only catch incorrect phone numbers or spelling corrections, the mileage factor cannot be corrected at the pre-completion level but only at renewal when the insured complains about the increase in premium unless an inspection is completed and a mileage disclosure is developed. Without seeming redundant, I have spoken in generalities because it is not my intention to get employees in trouble but to correct the failures of this program and this company. If the deficiencies discussed here are not corrected I have lists of managers, employees, and policy numbers that are at issue and I will release this information to the media and notify those insureds that have been wronged. Insureds will have grounds for a class action lawsuit.

    Sincerely,

    Ann Anonymous Agent (AAA)
    For fear of retaliation

    cc: Dave E. Jones; CA Insurance Commissioner, Robert T. Bouttier; COO Auto Club Enterprises, Avery R. Brown; General Counsel Auto Club Enterprises, Karen Featherstone; Underwriting Manager, David Lazarus; L.A. Times

    If what is described in this letter has happened to you please contact the California Department of Insurance and file a formal complaint at:
    State of California Department of Insurance
    Consumer Services and Market Conduct Branch
    300 South Spring Street, South Tower
    Los Angeles, CA 90013

    Or by the web:

    http://www.insurance.ca.gov

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