WALNUT CREEK — Nancy Bell figures she will be driving less now that she's retired. So the Oakland resident opted for a new kind of auto insurance policy that rewards drivers for doing just that.

By signing up for a pay-as-you-drive policy offered by State Farm instead of an estimated miles policy, Bell could see her future premiums fall. The less she drives below a threshold of 19,000 miles a year, the more she saves.

"I thought this was a really good way to take advantage of additional discounts for driving less," said Bell, 63, who moved to Oakland from a Boston suburb after retiring as an industrial buyer. "There is an additional incentive, with the price of gas being so high," she said.

Bell purchased the policy shortly after it became available in late February.

Premiums are tied in part to the actual number of miles driven, as opposed to estimated annual miles listed on a policy. Any savings from driving less are applied to the next six-month premium period.

State Farm offers its program in California, Illinois, Ohio and Texas; Auto Club of Southern California began offering pay-as-you-drive policies earlier this year. Progressive offers a usage-based insurance policy in many states. While other major insurers, including AAA Northern California and Allstate Insurance, are not planning to offer them at this time in California, the industry will be watching to see if the concept catches on with consumers.

In its pay-as-you-drive program, which State Farm calls Drive Safe & Save, motorists can self-report their mileage online or at an agent's office before renewing a policy. Drivers with General Motors, Saab and Saturn vehicles equipped with OnStar technology and who have an active diagnostics account can have the mileage automatically sent to State Farm. Customers who meet the OnStar criteria also can choose to self-report their mileage.

Bell is going for the self-reporting option, since her older-model Saturn is not equipped with OnStar. She already has made some changes to her driving habits.

"It does make me think to try and combine trips and avoid them whenever possible," said Bell, who paid $338 for a six-month auto insurance policy from State Farm.

The mileage verification method — self-reporting or automatic device — is left up to the driver, who also can receive a small discount for signing up for a pay-as-you-drive policy. If a motorist chooses to self-report odometer readings, insurers can use a third-party vendor such as Carfax — which collects data from automotive repair shops — to verify accuracy.

California motorists always have been able to ask for a discount on future premiums for driving less than their estimated mileage. They still can, regardless of whether their insurer has rolled out a pay-as-you drive offering.

Before it launched its Drive Safe & Save program, State Farm drivers had two types of estimated annual mileage policies: premiums tied to less than 7,500 miles (short annual) and more than 7,500 miles (long annual).

The new program essentially provides future premium savings for every block of 500 miles that a motorist ends up driving below the threshold of 19,000 miles a year.

"Now you've got 39 different mileage segments where you can fall under and potentially have savings in each of those segments if you are moving down in mileage," State Farm spokesman Bob Devereux said.

State Farm expects that 25percent of its more than 3.4 million auto insurance policyholders in California will sign up for the program.

The program is not for everyone, given that the potential savings can only kick in if a motorist drives less than 19,000 miles a year.

"If you are driving more than 19,000 miles a year, there would be no opportunity for the savings that come with the Drive Safe & Save program," Devereux said.

Pay-as-you-drive policies can benefit consumers, as long as they provide significant savings for driving less, said Doug Heller, executive director of Consumer Watchdog.

"What it does is tether your insurance premiums more closely to actual miles that you drive every year. By making some changes and alterations in your driving habits, you can actually save money," he said. "If you're driving less, you're less of a risk to your insurance company so you should be able to pay them less."

State Farm's program does accomplish that goal, whereas the Auto Club of Southern California's program does not provide significant savings, he said.

"State Farm's program actually fits with the goals of this pay-as-you-drive idea," Heller said.

Potential Drive Safe & Save savings

Scenario: A 36-year-old single male in Concord, ZIP code 94520, has a good driving record and drives a 2007 Honda Accord an estimated 12,000 miles each year. He would pay $744 a year for a full-coverage policy offered by State Farm.
Below are the estimated 2012 premiums, based on annual mileage, if the same driver were enrolled in State Farm's Drive Safe & Save program:

2,000 annual miles: $444, or 40 percent less
5,000 annual miles: $518, or 30 percent less
8,000 annual miles: $640, or 14 percent less
12,000 annual miles: $684, or 8 percent less
16,000 annual miles: $730, or 2 percent less

Source: State Farm