A new approach to how auto insurance would be priced is beginning to catch hold and could spread quickly if it proves to be something people like.
The concept is called "pay as you drive" and it factors miles driven and driving behavior into premium rate development. So far, Progressive, an auto insurer whose ads you've probably seen on television, has begun to sell this product in Alabama (in July) and will launch the product in New Jersey next week.
California officials are apparently considering legislation that would allow the concept to be marketed there. The California Assembly passed the bill (A.B. 2800) by a vote of 72-2, so it was popular on that side of their legislature.
Here's how it works:
Policyholders receive a small wireless device that ties into the vehicle's computer diagnostic system. The device gathers data from various functions on-board the vehicle. This data reports how much the vehicle is being driven, when the vehicle is being driven, the number of miles driven and mileage by time of day, the speed per second and all sudden acceleration, deceleration and braking.
The data is transmitted automatically to Progressive, and policyholders can check their data on-line.
The whole point apparently is to cause those who drive more to pay more while those who drove less would pay less. A recent study from the Brookings Institution found that today, drivers similar in age, gender, location and driving record pay nearly the same rates. If all drivers were to pay per mile, driving would decline by 8% nationwide thus saving $50 to $60 billion per year from reduced congestion and fewer accidents. It would also supposedly reduce carbon emissions by 2% and oil consumption by 4%. (By the way, in the first five months of 2008, miles driven by drivers in the U.S. have dropped 2.4% or nearly 30 billion miles given the cost of gasoline and diesel fuel.)
Progressive is also introducing this program in Minnesota and Oregon. If the program appears popular in Minnesota, I'll wager that it won't be long before it is is being touted in Wisconsin.
Not stated in the study, but inherent in the supposition, is anything concerning the premium rate impact. It stands to reason that the safer driver would be charged less for his or her premium. This will strike some as a way to single out a group for higher rates. If that group is incurring the bigger costs, would that be all bad?
Beyond all this is the privacy invasion issue that will certainly be part of the debate and acceptance patterns.
