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California's "Pay-As-You-Drive" Insurance Misses Mark


by Justin Horner

This week, regulations proposed earlier this month by California Insurance Commissioner Steve Poizner that purport to incentivize Pay As You Drive insurance will likely be adopted as law.

As readers of this blog may remember, Pay As You Drive insurance directly ties the amount you pay for auto insurance with the number of miles you drive. This incentivizes and rewards less driving, which is good for the environment, and offers drivers an easy way to save money, which is great in these economic times. In fact, it’s such a good environmental idea that 13 states have included it in their Climate Action Plans, their blueprints for cutting global warming pollution.

Now, you would think states would jump all over a policy that helps the environment and saves people money. And you would think California, the nation’s environmental leader, would be the first in line.

However, as Carmen Balber, the Washington, D.C. Director of Consumer Watchdog and I discuss in an opinion piece in the San Jose Mercury News, this is, unfortunately, not the case. In fact, California’s Department of Insurance has put forward regulations that likely will not do anything to promote PAYD.

To really break it down to it’s fundamentals, PAYD needs two basic elements: 1) a method to record and verify a driver’s mileage; and 2) a clear price per mile. The clearest image is to think of a taxi cab’s meter: you’re paying a set amount of money per mile you’re driven. A short cab ride with a bunch of friends may be worth it; a solo cab ride to Quebec probably wouldn’t be. In either case, you are able to make an informed decision about how much you want to pay for the distance you travel. That’s the key.

The problem is, California’s new regs only get us half-way there: they permit your insurer to verify your mileage. They do nothing to set a clear price. They neither require a PAYD price structure nor even offer guidance on how to make one. Setting up mileage verification programs is not the same as offering PAYD insurance.

Instead of requiring insurance companies to offer PAYD insurance policies, the final regulations appear to merely permit insurers to offer a voluntary mileage verification program. In return, insurers are permitted to offer discounts to drivers to have them enter such a program and, importantly, charge drivers based on new additional factors that may cloud the relationship to mileage even more. The regulations also allow insurance companies to require drivers, as a condition of their participation in a mileage verification program, to install a mileage tracking device in their vehicles.

Because mileage verification in the regulations is entirely voluntary, there is no evidence that any insurance companies will offer PAYD insurance. The regulations weaken driver privacy and make insurance pricing less transparent – changes the insurance industry lobbied for – but still offer no timeline or proposal for when, or if, drivers will see any PAYD policies in California.

NRDC will continue to work with the Department of Insurance, individual insurers and our consumer allies to move California towards a true PAYD approach. I don’t think anyone is completely satisfied with what’s been issued. We’ve asked the Department to convene a working group to get everyone at the table. We hope the Department extends the invitation.


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