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'Pay as You Drive': Where the Highway Meets the Information Superhighway(BestWire Services Via Acquire Media NewsEdge) Where the price of putting a car on the highway meets the information superhighway, some insurers are hoping drivers and policy makers will turn their attention to new "pay-as-you-drive" insurance plans. The price of a gallon of gasoline remains near record levels. And there are signs that fuel prices, combined with a weak economy, are changing driving behavior. The number of miles driven in the United States in the first five months of this year fell 2.4%, or 29.8 billion miles, according to the U.S. Department of Transportation, the first serious decline in 29 years. Now, some insurers are marrying an old idea -- factoring mileage driven into insurance rates -- and new wireless technologies. California officials are considering legislation, A.B. 2800, to allow pay-as-you-drive insurance. The bill passed the state Assembly by a 72-2 vote. Insurance Commissioner Steve Poizner is considering regulatory changes to clear the road for new technology-based tools. One company keeping a close eye on developments in California is Progressive, which is rolling out its MyRate program aimed at low-mileage, safe drivers. Progressive began implementing MyRate in Alabama in July and will begin accepting policies in New Jersey on Aug. 8. Policyholders receive a small wireless device -- "a data recorder and telephone all in one" -- that plugs into a car's computer diagnostic system. The device gathers multiple data points on how much and when the vehicle is being driven, including miles driven, miles by time of day, speed per second, and sudden acceleration, deceleration and braking events. The data is transmitted automatically and wirelessly to Progressive. Policyholders can access their vehicle data online, said Richard Hutchinson, general manager for usage-based insurance. Progressive participating drivers can save up to 40% based on their driving habits -- minus a $30 fee each policy period for the technology. To Hutchinson, it's basic economics. "When consumers are faced with the true cost, they tend to consume less," he said. A newly released study from the Brookings Institution provided support for pay-as-you-drive plans on both economic and environmental grounds. The study found drivers similar in age, gender, location and driving record pay nearly the same rates whether they drive 5,000 or 50,000 miles per year. If all drivers paid per mile, driving would decline by 8% nationwide, saving $50 billion to $60 billion each year, largely from reduced congestion and fewer accidents, according to the study. That would also cut carbon dioxide emissions by 2% and oil consumption by 4%. Pay-as-you-drive plans would be eligible to receive a boost in federal funding under a bill introduced in July by U.S. Rep. Earl Blumenauer, D-Ore., H.R. 6495. Also in the House is H.R. 2296, legislation introduced by Rep. Jim Gerlach, R-Pa., which would provide tax credits for insurers that offer pay-as-you-drive policies. The National Association of Insurance Commissioners offered support for pay-as-you-drive plans in a white paper on climate change adopted at the group's summer meeting in San Francisco (BestWire, June 2, 2008). Progressive's program is also being introduced in Minnesota and Oregon, states where an earlier effort known as TripSense began in 2004. A pilot program known as Autograph was tried in Texas in 1999 (BestWire, May 29, 2001). These programs were bulky and inconvenient to use, gathered less information and faced other technological hurdles, Hutchinson said. "It was a manually intensive technology," he said. "Now, it's much more of a real-time interaction." Another program aiming to make use of technology is GM's OnStar, which in cooperation with GMAC Insurance offers a discount to service subscribers who drive fewer than 15,000 miles per year. That program only collects mileage information. State Farm, which ranks first in automobile insurance market share in California, provided Poizner with a wish list for what it hopes to see in the proposed regulation. State Farm wants insurers to be permitted to collect much the same information as Progressive's (eighth in California market share) MyRate, plus where miles are driven and on what types of roads, among other factors, spokesman Bill Sirola said. Consumer Watchdog, a California advocacy organization, is concerned the proposed California changes may eventually lead to just that. Flipping the insurance companies' arguments around, the group said the legislation would "force Californians to pay a premium for their privacy" and allow insurers "to install spyware in Californians' cars, and charge higher auto premiums to those who refuse." (By Sean P. Carr, senior associate editor, BestWeek: [email protected]) Copyright ? 2008 A.M. Best Company, Inc. |