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State Farm, the largest U.S. car insurer, is going first. So much for perceptions that the first company to try this innovative rating technique would be, well, somebody smaller and faster. State Farm calls the program “Drive and Save.”
The application is under review, California Insurance Commissioner Steve Poizner said in a recent statement. Mr. Poizner approved the concept last fall (see our first blog, below).
"It's just common sense that Californians who choose to drive less should have an option to pay less for auto insurance," said Commissioner Poizner. "The voluntary pay-as-you-drive initiative is a cutting-edge program that will allow insurers to offer these plans without compromising consumer privacy. I hope other insurers follow suit and join State Farm in offering this product."
State Farm says that the new policies could roll out as early as September. “It’s a program from an insurance point of view that helps us better match price to risk, and that’s a good thing for everybody,” Devereux said.
Progressive’s “MyRate” pay-as-you-drive coverage, which uses a device to measure mileage, is talking to California now.
PAY AS YOU DRIVE
Okay, we've all been busy with other things over the last year but I'm surprised this one is slipping under the radar. Last September, California Insurance Commissioner Steve Poizner issued final pay-as-you-drive regulations, which will enable insurers to rate their policies based on actual miles driven as opposed to estimated miles driven. Have you even heard about this? Judging from the silence out there, not many have.
I've been watching the success of providers like Zip Car in large cities like Philadelphia and San Francisco. Customers--mostly city dwellers with limited daily needs for cars--can join up, simply get in the car and drive where they want paying only for the use of the car. "Pay As You Drive" does the same thing, shifting the fixed cost of insurance to a variable cost just like gas, oil and tires.
This one just might work because technology now allows mileage tracking securely enough to satisfy the crustiest underwriter.
Like all innovations, this is not for everyone: high mileage drivers will probably want a more traditional policy. And California is not the first to offer PAYD policies, according to the Environmental Defense Fund:
"PAYD insurance is available in some form in 34 states and in many foreign countries including Israel, the Netherlands, United Kingdom, South Africa, Canada and Japan.
"Given its many benefits, why isn’t PAYD universally available in the U.S.? One reason is that many state insurance regulations do not permit PAYD — either by outright prohibition or conflicting requirements. North Carolina, for example, requires that premium charges be stated upfront, which precludes PAYD charges since they vary according to miles driven.
California is now working on eliminating its barriers to PAYD insurance. The state's insurance commissioner Steve Poizner recently announced his intention to draft new regulations to allow usage-based insurance.
Texas recently became the first in the nation to have a "by the mile" choice of auto insurance offered by MileMeter. Traditional insurance offers 15 percent or less mileage-based discounts that don’t typically capture the full benefit of driving fewer miles."
The California regulations also allow insurers to offer discounts to drivers who opt to purchase a mileage verification policy. Any auto insurance program, including a pay-as-you-drive program, must be approved by Commissioner Poizner before being placed on the market for consumers to purchase.
If a driver elects to purchase a pay-as-you-drive policy, the insurer would verify the driver's miles through a variety of methods, including odometer readings taken by the insurer or its agents or vendors, auto repair dealers, smog check stations, self-reporting by the policyholder or a technological device placed in the consumer's vehicle. The final regulations explicitly prohibit insurers from gathering location data from consumers for automobile rating purposes through the addition of a technological device. The regulations would not affect existing multipurpose devices such as GM's Onstar system or the use of a technological device as part of an emergency roadside assistance program.
In 2008, the Environmental Defense Fund estimated that if 30% of Californians participate in pay-as-you-drive coverage, California could avoid 55 million tons of CO2 emissions between 2009 and 2020, which is the equivalent of taking 10 million cars off the road. This would save 5.5 billion gallons of gasoline and save Californians $40 billion dollars in car-related expenses. Additionally, the California Air Resources Board has recommended the adoption of pay-as-you-drive as one of the means to meet future climate change gas reduction targets.
As near as I can tell, Progressive and GMAC are offering these products now. Others are "studying it."
Roy Little brings more than thirty years of industry experience to IEA, having served in executive roles with Cigna, Argonaut, and Fireman's Fund. His diverse background also includes executive positions with industry service providers Pinkerton's (security and investigations), ePolicy Solutions (technology) and Frye Claims (claims adjusting and third party administration). He has been the CFO of four companies or divisions, SVP and general manager of two major insurance businesses, insurance practice director for a successful technology start up, and President of a claims company. Roy is committed to maintaining the highest quality educational and customer service standards at IEA while expanding IEA's customer reach into new geographic areas and new customer groups. Having earned his MBA while on active duty with the Air Force, he understands the unique dynamics of professional education while working full-time. Roy is a member of the California Department of Insurance Curriculum Board and is actively involved in the activities of the Insurance Industry Charitable Foundation. Contact roy@ieatraining.com (714)689-0167
