Policies With Rates Based on Miles Have Way to Go
Be honest--how many of you have fibbed about the miles you drive, hoping for lower premiums on your auto insurance?
Under California law, insurers must consider mileage, so in theory, the fewer miles driven, the lower the insurance premium. Temptation for drivers to underestimate mileage is certainly there.
How many drivers do it--in California or nationwide--is unknown. But James Quiggle, president of the Coalition Against Insurance Fraud, says “fudging your mileage on your auto insurance application or renewal is a major headache.”
It may seem like “small scams committed by normally honest people, but the scams add up collectively to millions of dollars a year that honest policyholders end up paying for in higher premiums,” says Quiggle, whose Washington-based watchdog group includes consumers, insurance companies and policymakers.
But what if insurers discovered ways to closely monitor drivers and their habits?
It sounds futuristic, but one insurance company already has tested the notion of keeping tabs on its policyholders for the sake of lower premiums.
Progressive Insurance Corp. conducted a pilot project in Texas beginning in 1998 in which more than 1,000 of its customers’ vehicles were equipped with global-positioning systems and cellular technology.
Participation in the project was voluntary.
The purpose was to gather information about how much, when and where the vehicles were driven and then to charge accordingly, says Leslie Kolleda, spokeswoman for the Ohio-based insurer.
“It was the first time consumers ever had control over their ultimate auto insurance cost. They loved it,” Kolleda claims.
Progressive says the insurance bill for the average customer in the program fell by about 25%.
It’s the same concept as “switching your lights off when you leave a room to help keep down the costs of your electricity,” says Kolleda. “You can decide not to make that unnecessary trip in your vehicle” to keep down insurance costs.
Fraud fighters such as Quiggle also see such programs as a way to curb insurance fraud. And others believe that offering drivers financial incentives to drive less will result in less traffic and pollution.
But some fear that monitoring raises invasion of privacy issues and that the high cost of the technology makes the plan prohibitive.
Indeed, the costs of retrofitting vehicles in the Texas experiment ultimately put the brakes on the project, which ended last year. Nevertheless, Progressive remains committed to finding a more affordable and convenient way to calculate vehicle mileage and usage in order to offer drivers lower rates, Kolleda says.
When the pilot project was first introduced in 1998, “we were optimistic that original equipment manufacturers would be building more of this telematic equipment into vehicles on the assembly line,” she says. “Well, it didn’t catch on like we thought. We were a little bit ahead of our time.”
Meanwhile, Texas passed legislation last year that would allow insurers to offer customers policies with mileage-based rates.
Insurers could sell premiums in 5,000- and 10,000-mile allotments. When the mile limit is reached, the policy would expire. So far, though, no insurers are offering the policies, says Jerry Johns, president of Southwestern Insurance Information Service in Austin, Texas.
“While we are not, as an industry, opposed to it, we are still trying to figure out how to price it,” says Johns. “There are obvious flaws. How do we address the issue of someone running out of miles in the middle of the Mojave Desert? Some insurers, such as Allstate, are skeptical about mileage-based insurance policies. Though the company has recently begun to closely check odometers and to review auto repair bills to better determine how many miles and where vehicles are driven by customers, Allstate has no plans to offer specifically mileage-based rates, according to spokeswoman Lisa Wannamaker.
“Under a mileage-based policy, your policy period expires based on mileage as opposed to a time period,” and coping with that would require costly technology and a major overhaul of the company’s system, she says.
As for keeping customers honest about mileage, the day may come when technology “will give insurance companies the ability to sniff out small-time scams,” Quiggle says.
That would be especially welcome to insurers in California--the only state, according to the Insurance Information Institute, that now requires insurance companies to use mileage as one of the important factors in determining rates. Right now, California insurers use customers’ estimates of mileage, a system that can lead to abuse by those seeking to artificially reduce their premiums.
Lacking a way to accurately track their customers’ vehicle usage, though, insurers must weigh “the need to crack down on serious criminal enterprises like staged accident rings versus the time it takes to track down individual scams like fudging mileage,” Quiggle says.
Jeanne Wright cannot answer mail personally but responds in this column to automotive questions of general interest. Write to Your Wheels, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. E-mail: jeanrite@aol.com.
