California drivers could be offered a new -- and often cheaper -- kind of car insurance next year under a voluntary pay-as-you-drive plan proposed Wednesday by Insurance Commissioner Steve Poizner.
His plan would base annual rates partly on the exact number of miles driven and would allow people to pay less if they drive less. Poizner issued proposed regulations spelling out the plan, and the state’s insurers Wednesday were enthusiastic about the idea but wanted to see more details.
Two out of three households in the state could save an average of $276 per vehicle, and lower-income people, who generally use their cars less than the middle class or the wealthy, might save even more, said a July study by the Brookings Institution in Washington. However, some high-mileage drivers might see their rates increase by opting for pay as you drive, the Brookings report said.
Putting a pay-as-you-drive system in place would give motorists a reason to drive less and thus purchase less gasoline, proponents argue.
Environmentalists are big supporters of the idea and predict the scheme would cut emissions of greenhouse gases that contribute to global warming.
If just a third of California’s licensed motorists switched to the plan, it would be the equivalent of taking 10 million automobiles off the road, Assemblyman Jared Huffman (D-San Rafael) said. Huffman’s sponsorship of a pay-as-you-drive bill in the Legislature prompted Poizner to come up with his regulations.
“I am thrilled to pave the way for California drivers to obtain insurance that is more environmentally friendly and more accurately reflects driving habits,” Poizner said at a Sacramento news conference. “As a strong advocate of healthy market competition and a healthy environment, I am especially pleased to encourage this kind of innovation and additional options for consumers.”
Most major insurance companies said they were interested in offering pay-as-you-drive pricing to their customers.
Insurers say that such a plan would give them a more accurate way to calculate premiums based on customers’ having fewer accidents and claims for property damage and medical bills.
Currently, rates are based partially on drivers’ own and often erroneous estimates of how much they drive as well as their safety records and number of years behind the wheel.
“In concept, this is something we think is a good approach,” said Peter DeMarco, a spokesman for Allstate Corp., the state’s third-biggest auto insurer with nearly 2 million vehicles covered.
The No. 1 company, State Farm Mutual Auto Insurance Co., called Poizner’s plan helpful because “it makes sure that rates are fair,” company public affairs manager Bill Sirola said. State Farm insures 2.8 million vehicles in California.
Variations of pay-as-you-drive insurance are available in 34 states as well as in Canada, Europe and Japan.
The public will have 45 days to comment on Poizner’s proposed regulations, and a public hearing on the plan has been scheduled for Oct. 20. The commissioner would then have as long as a year to approve the final rules.
Under Poizner’s proposal, drivers could report their annual mileage in three ways: They could have their vehicle odometer checked by an insurance company representative; they could submit maintenance records; or they could have an electronic device installed in their cars that would transmit information to insurers.
The electronic monitoring would track only total miles driven and not how or where someone drives as occurs in other states and countries that have pay-as-you-drive insurance, Poizner said.
Companies would be given maximum flexibility to design pay-as-you-drive policies that could use ranges of miles driven or a per-mile fee to set rates, Poizner said.
Consumer groups, who opposed Huffman’s bill in the Legislature because they alleged that it conflicted with another state insurance law, are backing Poizner’s regulatory drive.
Regulations based on “a driver’s mileage will lower auto insurance premiums, particularly when the high cost of gasoline is encouraging people to drive less,” said Harvey Rosenfield, the founder of Santa Monica-based Consumer Watchdog, which advocates for policyholders.
The Environmental Defense Fund estimates that California drivers would save $40 billion in car-related expenses from 2009 to 2020 if only about 8.5 million drivers sign up for pay-as-you-drive policies.
One company, GMAC Insurance Group, says its customers in some other states -- whose mileage is tracked by General Motors Corp.'s OnStar system -- have reduced the premiums they pay by 13% to 54%.