'Pay-As-You-Drive' Regulations Given Green Light in California

 

Tuesday, Oct 20,2009, 8:45:08 PM   Click:

Long-draft Regulation to implement pay-as-you-drive insurance in California are now in force, the state Insurance Commissioner Steve Poizner said.

As approved by the State Office of Administrative Law, the final regulations allow PAYD auto insurance policies based on actual miles traveled versus estimated miles driven. Companies can continue to offer traditional policies based on the estimated mileage, but now have the option of also offering products mileage verified. All products will continue to require approval of the Insurance Commissioner before reaching the market.

Poizner, in a statement, said he encourages insurers California to enjoy the new option. "Pay-as-you-drive is an innovative way to give motorists the California financial rewards for driving less, resulting in low cost auto insurance, less air pollution and reduce dependence on foreign oil he said.

The first commissioner has proposed new regulations in September 2008, when gasoline prices were near record levels.

Insurers will be allowed to offer discounts to drivers who opt to buy political mileage verification. Insurers could verify miles driven through a variety of potential methods, including odometer readings taken by the insurer, agent or delegate; smog check stations, automobile repair shops, self-reporting by the insured, or an electronic device placed in the vehicle.

Samuel Sorich, president of the Association of Insurance Companies of California, said the new rules implement "innovative and pro-consumer" approach to auto insurance. "This allows insurers and consumers an additional tool to help ensure that premiums reflect the risk of having an accident," he said in a statement.

The final regulations explicitly prohibit insurers from using a technological device for collecting location data of vehicles for staff. The regulation does not affect the ability to use existing mechanisms such as GM's OnStar to provide services such as emergency roadside assistance.

The new changes also include:

- The explicit authorization for insurers to offer a price per mile or mile prepaid option for drivers;

- A requirement that any insurer offering a pay-as-you-drive plan must specify when filing with the Department of the exact types of mileage check from the insurer agrees, and

- A requirement that any insurer offering a pay-as-you-drive plan must take all mileage verification methods available equally to all applicants and drivers insured with a policy to check mileage.

State Farm, the largest auto insurer in California by market share and progressives have expressed interest in examining the plans for California PAYD (BestWire, July 13, 2009).

Through its Myrat, Progressive Insurance has used a method of electronic reporting for one year. Now approved and active in 15 states, Myrat includes diagnostic system to connect a wireless device in the computer of the car. The device can collect multiple data points? including miles driven, miles per hour of the day, speed acceleration per second, and suddenly, deceleration and braking events? and transmit it to Progressive (BestWire, August 4, 2008).

Consumer advocates have expressed reservations about PAYD regulations, citing privacy concerns. They believe that the use of electronics could open the door to collect data on the hours the vehicle is driven, how the vehicle is driven more than the bars of California to be used in the rate decision (BestWire , July 13, 2009).

According to the Environmental Defense Fund, if 30% of Californians participate in PAYD plans, it would be the equivalent of taking 10 million cars off the roads. The California Air Resources Board has recommended the adoption of PAYD as a means of achieving the objectives of future climate change gas reduction (BestWire, August 27, 2008).

The top five writers of private insurance for cars in California in 2008, based on AM Best Co. state / line data, were: State Farm Group, with a market share of 12.9%; Farmers Insurance Group , 11.0%; Mercury General Group, 9.4%; Auto Club Enterprises Insurance Group, 9.0% and Allstate Insurance Group, 8.4%.