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California eyes new kind of auto insurance policy

Drivers in California may be among those who have a new way to save money on auto insurance later this year if a recent statewide proposal is approved.

Drivers in California may be among those who have a new way to save money on auto insurance later this year if a recent statewide proposal is approved.

California Insurance Commissioner Steve Poizner recently proposed allowing insurance companies doing business in the state to offer “pay as you go” auto insurance plans. Under such plans, consumers pay premiums based on the actual amount of miles that they drive. Supporters point out that along with saving people money, these plans can also be good for the environment by creating an incentive to drive less.

Poizner’s office cites statistics from the Environmental Defense Fund predicting that California would save 55 million tons of carbon emissions between 2009 and 2020 if 30 percent of drivers were to adopt such policies. Along with the reduced pollution, state drivers would also save up to 5.5 billion gallons of gasoline and $40 billion in auto-related expenses.

Elsewhere, the Brookings Institution estimated in a report last year that nationwide availability of pay as you drive policies would result in 8 percent less driving overall, producing up to $60 billion in savings “by reducing driver-related harms.” The organization also predicts that total carbon emissions would be reduced 2 percent, while oil consumption would fall 4 percent, results it says would take a $1 per gallon gasoline tax increase to achieve otherwise. Each household that participated in such a program would save an average of $270 per car, according to the organization.

Pay as you go plans are already available in a number of other states and generally require a GPS-equipped tracking device to keep track of mileage driven. Poizner emphasized that under his plan, consumer privacy would be protected with a requirement that insurance companies could not use the technology to determine the location of a driver.

Still, a GPS device would not be the only way insurers could track mileage. Other options would include odometer readings by insurance agents or auto repair dealers or even self-reporting by drivers.

“These regulations expand insurance options for consumers, allowing a freer market to create incentives for driving less,” said Poizner, who earlier in his career founded a Silicon Valley company that puts GPS devices into cell phones.

Another option for the plan may allow consumers to pre-pay for miles they expect to drive in a given time period, with the option to purchase more if those miles are exhausted. Insurance companies would also be allowed to offer discounts to drivers who enroll in such policies.

If the plan is approved by state officials, California drivers could be using pay as you drive plans by the end of 2009. The insurance industry appears to be backing the idea, with Sam Sorich of the Association of California Insurance Cos. telling the Los Angeles Times that giving consumers this option would result in “more accurate and fairer rates for consumers.”

For drivers who don’t have such policies available in their own state, there are some options they can consider when it comes to reducing costs. For example, many insurers already offer low-mileage discounts for people who work from home or drive a relatively low number of miles in any given year. Some insurers have also determined that people who work in certain industries, such as teaching, tend to be less risky to insure and are therefore entitled to discounts.

Other discounts insurers have been known to offer include those for safe drivers and for honor students.

Along with checking with insurers for any possible discounts, another option may be to find out if discounts are available with any relevant professional organizations or other such groups.

Learn how easy and convenient shopping for auto insurance can be. Get your free auto insurance quotes today!

Posted: July 10, 2009

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