Esurance Calif. Pay-As-You-Drive Insurance Program OK’d

OdometerCalifornia regulators announced on Friday approval of a pay-as-you-drive (PAYD) program from Esurance that bases coverage discounts on odometer readings taken during each renewal period.

The program, called “Drive Less, Save More,” can save participating policyholders up to 15 percent on their premium if they cut down on their mileage after they purchase their coverage, according to a statement from the California Department of Insurance (CDI).

Esurance spokesman Danny Miller declined to offer specifics on how the tiered mileage system will change, but the CDI statement said policyholders reducing their mileage by 500 to 1,000 miles will see rate reductions.

Under the program, participants verify their odometer readings when they buy the policy and during each renewal period and can obtain cheaper auto insurance if they’ve cut down on mileage.

“It’s a great way to allow Californians to save money,” Miller said in an interview, adding that PAYD programs also spare drivers from rising gas expenses.

The CDI proposed opening PAYD options in 2008 and regulations for PAYD programs were created the following year.

PAYD programs exist at other insurers throughout the state, including the Automobile Club of Southern California, State Farm, CSE Safeguard and Sequoia of Marin.

Mileage is already factored into the price of every car insurance policy issued in California, but these PAYD programs enable insurers to establish smaller tiers that have a bigger impact on rates.

PAYD vs. Usage-Based Programs

Such programs differ from usage-based insurance (UBI) programs like Progressive’s Snapshot that utilize an in-car device to track a number of different driving statistics, including when and how far the vehicle is driven. Coverage discounts are based on what the device reports about the driver’s habits behind the wheel.

The CDI has not authorized any UBI programs or formulated UBI regulations, according to CDI spokeswoman Pat McConahay, who added that state regulators have lingering “concerns about the technology” used in the programs.

Privacy issues are one concern, she said, with the device recording driving data including how hard and when a driver brakes.

Another concern, McConahay said, is how insurers would use that data.

“There are concerns that insurers might penalize drivers for factors outside of their control,” she said in an interview. “One example might be charging more to a customer for their occupation that forces them to drive at night.”

McConahay said that although the CDI currently has received no filings for UBI programs, “it doesn’t mean we’re not open to considering UBI.”

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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