Pay-as-You-Drive Auto Insurance Plans Approved in Calif.

OdometerCalifornia Insurance Commissioner Steve Poizner announced today that the first two of the state’s pay-as-you-drive auto insurance plans have been approved and will be available to drivers starting next year.

Poizner has been pushing for approval of pay-as-you-drive plans, in which policyholders can get premium discounts for curtailing the annual amount of miles driven, since 2008.

The first California auto insurance companies set to implement such plans are State Farm, which estimates potential enrollment of 25 percent of policyholders for a total savings of $31 million, and the Automobile Club of Southern California, which estimates a potential savings of $68 per participating vehicle.

California insurance companies do not choose to evaluate the annual number of miles driven by a prospective policyholder — they are required to under the provisions of Proposition 103. This variable is one of the three factors that insurers must take into account when setting rates, the rationale being that the less time a driver spends on the road, the fewer chances he or she has to get into an accident and file a claim.

According to State Farm’s Drive Safe and Save program information page, the pay-as-you-drive program will be available to policyholders with OnStar systems that can be programmed to send monthly odometer readings to the insurer. Individual annual savings from the program range from 1 percent to 45 percent of the original premium price. According to the press release from the Poizner’s office, State Farm will soon break up their mileage tiers into smaller, 500-mile increments.

The benefits of pay-as-you-drive programs are said to extend far beyond premium reductions.

As Brookings Institution researchers noted in a 2008 study touting the benefits of the pay model, “Just as an all-you-can-eat restaurant encourages more eating, all-you-can-drive insurance pricing encourages more driving. That means more accidents, congestion, carbon emissions, local pollution, and dependence on oil.”

According to the study, if pay-as-you-drive systems were implemented across the country, it could result in an 8-percent nationwide decline in driving, “netting society the equivalent of about $50 billion to $60 billion a year by reducing driving-related harms,” as well as a 2-percent reduction in carbon emissions and a 4-percent reduction in oil consumption.

About Ben Zitney
Benjamin Zitney has been covering the auto insurance industry for the past 2.5 years. Before coming to Online Auto Insurance News, he produced an extensive company history of the 30-year-old California Joint Powers Insurance Authority and worked at the Cal State Long Beach Daily Forty-Niner as a reporter, copy editor and news editor.

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