California Pay-as-you-drive Insurance Irks Insurance Companies


What was initially hailed as a groundbreaking insurance system in California is now attracting strong flak from many vocal figures in the car insurance industry.

California Pay-as-you-drive Insurance Irks Insurance CompaniesWhile the concept of a pay-as-you-drive insurance scheme is not new to Americans, California is poised to become the first state to fully implement the system for all drivers. Earlier this year, state officials revealed ongoing tests to assess the viability of a prepaid or by-the-mile car insurance scheme.

California Insurance Commissioner Steve Poizner pointed out the many benefits that the new system would offer drivers, including lower premiums. Advocates and supporters of the system have also said that the new scheme will save Californians billions of dollars in gasoline expenses and repair costs.

Poizner says that if some 30 percent of drivers availed of the PAYD insurance across the U.S., motorists would drive 10 percent less and avoid the release of 55 million tons of CO2 into the atmosphere for the next ten years. The state insurance commissioner also adds that drivers who drive less can get lower premiums because of the proposed statewide scheme.

However, some experts in the auto insurance industry are casting doubts over the system’s effectiveness. Citing similar insurance schemes in Canada, the U.K. and Australia, critics of the PAYD insurance say that the system is set to fail because of limited demand.

Some privacy groups have also expressed concern over the plans to install monitoring devices on cars to record data needed by insurance companies to compute premiums. At present, some insurers that offer the PAYD system make use of odometer readings to come up with insurance rates. Several providers, however, are saying that this method is prone to fraud and misreporting.

To avoid this, several providers are suggesting the installation of more accurate measuring devices on policyholders’ vehicles. Non-GPS electronic devices will be installed on cars whose drivers have availed of PAYD insurance.

Monitoring devices are capable not only of measuring the total number of miles driven but also information relating to a car’s location, acceleration, speed, and the driver’s habits. Many critics say that insurance companies can change rates significantly based on different driving behaviors based on these data.

Motorists are also concerned that the installation of monitoring devices can be a breach of their privacy. In principle, the devices can be used to track or disable vehicles. Policyholders can also have a harder time disputing insurance rates because of these monitoring equipment, critics of the PAYD insurance contend.