The California Department of Insurance has revised draft pay-as-you-drive regulations to specifically allow insurance companies to offer discounts to drivers who choose a policy with mileage verification.

In a nod to the concerns of privacy advocates, the new draft would explicitly bar the gathering of location data from technological devices installed to check mileage.

If the regulations are adopted, insurers would be permitted to offer verified mileage programs -- including on a "price-per-mile" basis -- instead of, or in addition to, traditional policies based, in part, on estimated mileage. As revised, they would allow insurers to offer discounts to drivers who opt to purchase a mileage verification policy. Any new policy program requires the approval of the insurance commissioner before going to market.

"It's always nice when an insurance regulator decides to allow insurance buyers and sellers to enter freely into contracts that both regard as beneficial, which is essentially what the pay-as-you-drive regulatory changes will do," said Robert Detlefsen, vice president of public policy for the National Association of Mutual Insurance Companies.

California Insurance Commissioner Steve Poizner said the revised draft follows the receipt of "dozens" of comments from the insurance industry, consumer groups and others. The revisions balance the interests of innovation and privacy concerns, he said in a statement.

"Pay-as-you-drive is a cutting-edge program that will create financial incentives for California motorists to drive less, leading to lower-cost auto insurance, less air pollution and a reduced dependence on foreign oil," Poizner said.

David Snyder, vice president and associate general counsel for the American Insurance Association, welcomed the "flexible approach" in the draft regulations. He criticized the explicit ban on the gathering of location data, as the industry regards that as a legitimate potential risk factor.

First conceived a year ago, at the height of a record surge in gasoline prices, the proposed PAYD regulations would allow automobile insurers to create plans to sell policies based on estimated miles, verified miles and prepaid miles (BestWire, July 13, 2009). They would be permitted to offer discounts to drivers who opt to purchase mileage-verification policies. Insurers could verify miles driven through a variety of potential methods, depending on the specifics of a chosen policy -- including odometer readings taken by the insurer, an agent or designees; smog check stations; auto repair shops; self-reporting by the policyholder; or, an electronic device placed in the vehicle.

Regulators hope to have final regulations announced in the fall.