California legislators have moved a step forward in pushing a policy that will determine the auto insurance rate of a motorist according to the number of miles he drives. Usage based auto insurance, more popularity known as a pay-as-you-drive (PAYD) policy, was initially proposed several months ago to help drivers save on their policy costs.
PAYD is not new concept in the auto insurance industry. There are many countries that are practicing, among them United Kingdom, Canada, Australia, South Africa, and Japan. 30 states in the country are currently allowing carriers to offer the plan to consumers as a limited option.
July this year, California Department of Insurance announced that it will mandate 100 percent adoption of the policy. With its progress so far, it is very likely that the state regulator’s plan will be fulfilled by 2010.
This week, Commissioner Steve Poizner released regulations allowing and authorizing carriers to verify mileage for PAYD, without dictating how the plan should be followed.
Regulators aim at using per-mile pricing to entice Californians to drive lesser, thus easing air pollution and its effects on the environment. Regulators also said it will help in decongesting metropolitan traffic and in decreasing the number of vehicle collisions.
Carriers from other states have begun offering PAYD to its policy holders. Some companies offer six-month policies with chunks of covered miles ranging from 100,000 to 600,000 miles. Insurers in California are likely to follow their examples. Car insurers which are already offering PAYD in other states said they will make the offer available once the regulation is enacted. Many providers in the state express approval over the plan, saying half of consumers holding a policy are being overcharged and underserved.
The most common usage based plan offers a year-long policy with premium rates based on projected mileage. Upon expiration, the insurer verifies the mileage a driver has clocked in his odometer. They will then refund or rebill a policyholder according to the actual miles he has driven.
Supporters of the proposition say making motorists pay for the miles the drive will help them consider other options such as walking, cycling, or using public transport. They add that it will also alter the habits of some motorists, like those who often engage in leisure driving. The state commissioner said getting discounts while saving gas is an attractive option especially now that California economy is still at its lows.
But some drivers express opposition of the insurance department’s plan, saying they do not want their driving habits to be tracked.
Meanwhile, motorists who own two or more vehicles see PAYD as an opportunity to cut back on costs for cars they seldom use.