Pay-As-You Drive Gaining Steam

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Been driving less lately?

You may qualify for auto insurance premium reduction, according to a consumer group that wants insurers to do even more when it comes to giving drivers a price break for driving less.

To that end, Santa Monica-based Consumer Watchdog released a first-of-its-kind report on Tuesday that ranks the state’s top 10 providers of auto insurance when it comes to providing price reductions to motorists who end up driving less than the annual miles listed on a policy.

While reductions for driving less are currently available, a lot of people don’t know they exist, said Carmen Balber, an advocate with Consumer Watchdog.

"If people know they are driving less… they should let the agent know," she said.

The reductions that are available also require drivers to cut down on their driving significantly before they kick in, she said, adding that a better approach would be to have them kick in smaller mileage increments.

Proposition 103, the insurance reform initiative passed by voters in 1988, requires that miles driven have the second largest impact on setting insurance premiums. The first factor is a motorist’s driving record.

In the report, 21st Century and AAA of Northern California topped the list with a grade of "C" while half the companies scored a "D" or below.

21st Century had 11 mileage categories that provided an average premium discount of $22.10 for every block of 1,000 fewer annual miles driven based on an example involving a female motorist with a good driving record and 22 years of driving experience. State Farm, which received an "F’ grade with only two mileage categories, provided an average discount of $234.05, but only if a motorist drove 7,500 mile or less in a year.

"So a driver who had a policy with 15,000 miles who drives 10,000 miles would not save a dime with State Farm Insurance. Most drivers who drive less with State Farm will not pay less," said Balber.

With 3.2 million policyholders, State Farm is the largest provider of auto insurance in California.

Bill Sirola, a spokesman for State Farm, said there are lot of factors besides miles driven – or not driven – that go into setting auto insurance premiums.

"There is a lot more to consider than just pure mileage ," he said. "We tend to look at driving as a total package. We are always looking at new ways of managing our rates. What is true today, may not be true tomorrow."

State Farm’s requirement for obtaining the driving-less discount is "by and large is just self certification by our policyholders," he said.

"If customers feel their mileage usage to calculate premiums is no longer accurate, we encourage them to contact us," said Jenny Mack, spokeswoman for AAA of Northern California.

Last August, the state Department of Insurance said it would develop regulations for a usage-based insurance product that is expected to be in place in this fall that would reward motorists who drive less.

Consumer Watchdog would like Insurance Commissioner Steve Poizner to develop regulations that would provide drivers with more incentives for driving less than those that currently exist. For example, instead of getting a discount for every 1,000 fewer miles driven during the course of a year, insurers could be required to provide discounts for every 300 fewer miles driven.

"(Current discounts) are not enough. Drivers have to have more incentives to reduce mileage and a greater chance to save," said Balber.

Insurance companies also need to do more to inform motorists about the current discounts for driving less, which have been around since the passage of Prop. 103, she said.

Greater incentives for driving less would also help the environment and lead to fewer auto-related injuries while saving motorists money off the cost of auto insurance, said Justin Horner, a policy analyst with the Natural Resources Defense Council.

On average, Californians have already cut down on their driving in recent years. A report by the Brookings Institution found that from December to 2006 to September 2008, motorists in California had reduced vehicle miles driven on a per-capita basis by 4.7 percent. Nationally, there was a 4.3 percent reduction.

"There’s a current trend and national trend toward driving less," said Horner. "Higher gas prices are part of it but it’s also the economic slowdown. But even though gas went from $4 to $2, people are still driving less … We believe people are changing their transportation patterns. (Four dollar) gas prices really gave people a shock."

Reductions for driving less listed below are based on policies designed for a female motorist with a good driving record and 22 years of driving experience. Actual reductions will vary depending on the driver and other factors.

Grade   Company   Mileage categories   Mileage reduction for discount   Average savings
"C"   21st Century    11   1,000    $22.10 every 1,000 miles
"C"   AAA of N. Calif.   11   1,000   $20.59 every 1,000 miles
C-"   Farmers   9   1,000   $35.98 every 1,000 miles
"C-"   Mid-Century  9   1,000   $32.87 every 1,000 miles
"C-"   Allstate   8   1,000    $35.03 every 1,000 miles
"D"   Progressive   8   1,500    $87.53 every 1,500 miles
"D-"   Infinity   6   2,000    $160.78 every 2,000 miles
"D-"   Mercury   5   2,000    $29.92 every 2,000 miles
"D-"   AAA. of S. Calif.   4   2,500    $103.60 every 2,500 miles
"F"   State Farm   2   NA    $234.05 at 7,500 miles or less

Source: California Department of Insurance, Consumer Watchdog

To obtain a price break for driving less, motorists must be pro-active and inform the insurance company they drove less in the last year (or six months if the policy is renewed every six months). Insurance companies typically use estimates given to them by policyholders to collect mileage data. Under the regulations introduced last fall, consumers would have the option to more accurately verify mileage data with their insurers by odometer readings, automotive repair records or a technological device used to collect mileage data. Depending on the company, price breaks for driving less can be applied toward the cost of a future policy or on the current policy. Retroactive discounts for driving less in previous years are not available. Contact your insurance company for details or the Department of Insurance at 1-800-927-4357.

Eve Mitchell covers personal finance. Reach her at 925-952-2690 or [email protected]

Consumer Watchdog
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