New Auto Insurance Concept

There’s a brand new concept in auto insurance in that’s making headlines on the west coast.  The state of California has authorized auto insurance companies to implement a “pay-as-you-drive” auto insurance policy. The plan requires that drivers show mileage verification by installing an electronic mileage tracing device into their automobile, or implementing programs that require insurance agents to record odometer readings.

Research shows that pay-as-you-drive programs are less expensive, and may encourage drivers to be more conservative in miles driven which is proposed to reduce pollution and incidence of traffic accidents to prove that they have stayed within the parameters of the insurance policies mileage coverage.

An example of how the plan works is that the insurance company would offer 6 month policies to cover drivers for 1,000-6,000 miles and then policy holders would renew their policy when miles run out.

Other types  of policies that are being considered by State Farm, Allstate and Progressive may be to cover drivers for a year long policy that covers a pre-set amount of miles.  At the end of the year policy holders would be issued a refund  if their actual miles are under the pre-set amount, or they would be  billed for extra miles driven that were not covered on the policy.

The California Insurance Commissioner has authorized regulations that allow insurance companies to use mileage verification for pay-as-you-drive policies. Studies have shown that per-mile pricing encourages drivers to alter their habits, particularly with the current auto credit crisis and the consumer consensus to save money. Reducing mileage in turn reduces air pollution, congestion and traffic accidents.

Critics of the new policy proposals are afraid that Insurance companies could go to extremes in trying to access information on insured individual’s record of average speed driven, or when vehicles are being driven in order to inflate rates based on higher risk driving habits.

A new study has confirmed that the result of Americans switching to a pay as you drive type policy will be an average reduction of 4% in oil consumption and an average insurance and gas expense savings of $270 per car.