California ‘Pay-As-You-Drive’ Regulations Approach the Starting Line

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SACRAMENTO, CA — California’s proposed pay-as-you-drive insurance regulations are winning industry support as they steer closer to the marketplace.

First conceived a year ago, at the height of a record surge in gasoline prices, the proposed PAYD regulations would allow automobile insurers to sell coverage by the mile. Companies would be able to create plans to sell policies based on estimated miles, verified miles and prepaid miles.

They would be permitted to offer discounts to drivers who opt to purchase mileage-verification policies. Insurers could verify miles driven through a variety of potential methods, including odometer readings taken by the insurer, an agent or designees; smog check stations; auto repair shops; self-reporting by the policyholder; or, an electronic device placed in the vehicle.

Through its MyRate program, Progressive Insurance has been using an electronic reporting method for a year. Now approved and active in 15 states, MyRate includes the plugging of a small wireless device into the car’s computer diagnostic system. The device can gather multiple data points  — including miles driven, miles by time of day, speed per second, and sudden acceleration, deceleration and braking events — and transmit it to Progressive (BestWire, Aug. 4, 2008).

Jim Curtis, Progressive’s California product manager, said it is too soon to tell whether the California regulations would allow implementation of MyRate. However, he said, the proposals include key elements that make them attractive to insurers: flexibility on developing premiums, verified accurate mileage readings, and incentives for safe, verifiable driving behavior.

State Farm, California’s largest auto insurer by market share, has long been interested in pay-as-you-drive in California. While the company is not commenting publicly, yet, on the current proposals, spokesman Bob Devereux said conceptually they move in the right direction of "matching price to risk."

"We think it’s a very creative proposal," said Samuel Sorich, president of the Association of California Insurance Companies. "Our goal is to make this as attractive an option to customers and to insurers as possible."

While generally in favor, Sorich pointed to what insurers see as a flaw: In a nod to privacy concerns, the regulations specifically prohibit the gathering of location data from any implanted technological device.

"If a consumer believes his or her driving behavior is safe and he or she wants to get the benefits of that safe driving behavior… as long as it is voluntary and the information is explained to the consumer properly, the consumer should make the decision," Sorich said.

"We think that is a relevant risk factor," said David Snyder, vice president and associate general counsel for the American Insurance Association.

Advocacy group Consumer Watchdog approves of the prohibition on location data, but staff advocate Carmen Balber said it does not go nearly far enough to protect consumers’ privacy. She said the proposed regulations open the door to electronic devices that gather additional data on hours the vehicle is driven, how the vehicle is driven and more that California bars from being used in rate-making.

"It would allow insurance companies to gather information they can’t even use in rate-setting," Balber said.

Organizations like the Environmental Defense Fund have advocated pay-as-you-drive as a means of encouraging consumers to drive less while benefiting their wallets and the environment. The use of onboard recording/transmitting devices also provides insurance companies with a commodity they desire: more data.

Insurers’ main obligation is to price according to risk,  Snyder said.

Overall, Snyder said, the regulations "seem to be a relatively good balance." By promulgating these regulations and allowing a new auto insurance product to enter the market, "California shows true leadership in this area," Snyder said.

The public comment period on the regulations expired July 9. If substantial changes are made at this point, another comment period may be opened, said Darrel Ng, a spokesman for California Insurance Commissioner Steve Poizner. "If everything goes smoothly, we could see final regs by the fall," Ng said.

Contact the author Sean P. Carr, Washington Correspondent, at: [email protected]

Consumer Watchdog
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