California auto insurance goes green

California motorists who spend little time on the road could pay significantly lower insurance premiums with new "pay-as-you-drive" auto policies starting in February.

To be offered first by California insurance giants State Farm Mutual and the Automobile Club of Southern California, the new policies are designed to reward drivers who drive less. Other insurers are expected to follow.

Under current law, drivers are only required to provide insurers with estimates of their projected mileage. This creates an inaccurate system that may not reward those who are truly driving less.
 
Studies show that pay-as-you-drive insurance results in fewer accidents, fewer asthma-related missed work days and hospital visits, and more money in California consumers’ pockets, according to Assemblyman Jared Huffman (D-Marin), who authored the legislation authorizing the new programs. Less driving also means less greenhouse gas spewed into the atmosphere at a time when California is clamping down on planet-heating emissions.

Under State Farm's plan, customers would provide their vehicle's actual mileage when they sign up for the program or they could automatically transmit their mileage if they have the OnStar computer-communication system in their General Motors Co. vehicle.

Subsequent mileage readings would be personally recorded by a State Farm agent or determined by third-party verification services using servicing records, Carfax reports, California Smog Check data or other sources. The Auto Club would use similar verification services and also give motorists the opportunity to install an automatic mileage data transmission device in their car.

State Farm estimates that "ultra-low-mileage" drivers — less than 2,000 miles a year — could save up to 45% of the cost of a six-month premium compared with current rates based on a driver's own mileage estimates. Premiums from its Drive Safe & Save program could drop by hundreds of dollars a year, State Farm said.

State Farm, California's No. 1 seller of private car insurance, intends to aggressively market the new product. The company expects eventually to sign up about one-fourth of its 3.3 million policyholders in the state.

More accurate customer mileage readings should translate into better risk underwriting, spokesman Bob Devereux said. "We believe in the long run, if we're better matching price to risk it's good for the customer and good for the company," he said.

The Auto Club, the state's second-largest car insurance company, estimated drivers' potential savings at between 1% and 10.5%, depending on how much someone drives a year. It said members who opt for its verified mileage program could save an average of $68 per vehicle compared with customers who keep their traditional coverage.

Making the new pricing plan available has been a top priority for outgoing Insurance Commissioner Steve Poizner. "The voluntary pay-as-you-drive initiative is an innovative program that will allow insurers to offer plans based on more accurate mileage, so that people who choose to drive less will pay less for auto insurance," Poizner said.

Environmentalists, who were some of the first proponents of pay-as-you-drive auto insurance, were pleased."This encourages and rewards drivers to lower the amount they drive," said Lauren Navarro, an
attorney with the Environmental Defense Fund in Sacramento. "Just not taking unnecessary trips will help us to meet our clean-air mandates and global-warming pollution mandates."

The launch of pay-as-you-drive is expected to spur competitive plans from most of California's insurers. Almost all of them early on expressed interest in the concept. "Once there is a sense of how this is working for State Farm and the Auto Club, more insurers will be compelled to offer the same thing," said Deputy Insurance Commissioner Joel Laucher.

State regulations also seek to ensure that mileage information will be used only to set premiums and that the data will not track a motorist's driving habits or compromise a customer's privacy.

State Farm policies will be available for sale to new and renewal customers Feb. 28. Auto Club members can sign up starting Feb. 1.

Consumer advocates generally hailed the plans as an innovation. But Douglas Heller, executive director of Santa Monica-based Consumer Watchdog, said he clearly preferred the State Farm plan. It increases rates more gradually, with prices going up for every additional 500 miles driven.

The Auto Club uses just four steps of 2,500 miles each for the first 10,000 miles driven and, above that, seven more steps of 5,000 miles each. The Auto Club says its formula is more fair to drivers who occasionally run up their mileage with long vacation trips.

"Auto Club doesn't give drivers a serious opportunity to lower rates," Heller said."With State Farm, if you cut out 500 miles a year, you save some money."

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Comments

[dave]

As a Farmers Insurance agency this will be very interesting to how many peolpe sign up for this. I do not think it will work myself and doubt it will ever catch on to Farmers, Allstate or any of the other big auto carriers.

[Steve]

What this might help do is encourage people (like me) to purchase a 2nd, much smaller car than my current gas guzzler, for the 90% of the time I don't need a big car.
I wouldn't own two cars if I had to pay full insurance on
both (why should you pay so much more for 5k miles/yr. on two cars than 10k on just one?) With the break though, it makes more sense. Saves fuel & fuel costs too.

[Jasmine Kennedy]

I like the policy "pay-as-you-drive". Its really sounds good.

[Dan]

I question the environmental impact this is going to have since I don't see this as having any affect on commuters. If I'm driving 12,000 miles a year to get to and from work, there's no way I'm going to drop down to 2,000 to save a few dollars. And with the lack of viable public transportation options, I probably couldn't do it even if I wanted to. This may reduce the number of trips someone takes, but I suspect that fuel prices are already somewhat of a deterrent.

I also don't see how this is going to result in more money in the California consumer's pocket. For every person that gets his/her premium reduced for driving less, there is going to be someone who's premium is increased for driving more.

[Mindless News]

Free Advertising! Is this a commercial? State Farm & Auto Club??? who in California can keep it under 2000 a year? Public transportation in most area is not good or worth it.

Let's Face it California folks love their cars and will drive just because it is nice out. 6 miles a day is all this allows.

As I recall Most studies show that accidents frequentcy is greater with less use or closer proximity to home. This is an example of this usage.

In a nut shell State Farm & AAA got to toot their horn about how many they have not lost to the competition yet.

I'll keep my 12,000 miles a year Mercury Insurance policy and enjoy my car... After all that's why I have it. Not to mention price beats the competiton.

[san frann]

The average customer will pay an average of $68 less - so who cares? Really? That's not savings - you could get that much simply by changing policies....

[joe]

Not sure that 'pay-as-you-drive insurance results in fewer accidents'. From experience; lived in SF for number of years - went from 2 cars to having only 1. Wife drove probably once every 2 months. I definitely noticed her driving style change. Especially once we moved and went to having 2 cars again. It took a while for her to get her driving skills back. My point, people who drive less, although statistically in less accidents, are definitely not better drivers.

[Gaucho420]

Hoorah! I drive less than 7,000 miles annually,yet I'm insured at 10,000 miles annually (42% more than what I actually dive) so this could work very well for me.

I'll double check the fine print.

[David in Los Angeles]

What a joke. "Drivers who drive less than 2,000 miles a year could save up to 45%"? That's it??

Let's see, the average driver puts at least 20,000 a year on their car. Driving 90% less should result in paying 90% less.

Speaking of "pay as you go," while I'm not for another state bureaucracy, I've often wondered how driving habits would be effected if we paid for insurance via some sort of "pay at the pump" - which would be much closer to paying per actual mile.

[Steve]

I like this plan, tying together insurance cost with the amount of driving someone does. It will more fairly set insurance payments and provide incentives to drive less, which will decrease road congestion and reduce gasoline usage. Also, more palatable than a gas tax, although there are things to be said for that as well: http://livinggreenandsavingenergy.com/sound-energy-policy-includes-a-gas-tax.html

[MICHAEL WHITE]

Don't like this idea. For many people, driving is a necessity to get to work. There is no way around it, not carpooling nor commuting. Rates should only be based upon a driver's accident record.

[mansterEZ1]

Don't look for insurance companies to play fair. Seems like another red herring. What is the legislature and the auto insurance companies really up to? Somethins rotten up in here!!

[A Money Grab]

This is a crock, read the fine print on your policy, I did. Not a good deal for anyone.