By year's end California drivers could start buying automobile insurance by the mile, much as some cellphone users purchase talk time by the minute.
Under regulations proposed Friday by state Insurance Commissioner Steve Poizner, insurers could offer so-called pay-as-you-drive policies for drivers, who could cut their insurance bills by spending less time behind the wheel.
The proposed rules are open for comment from drivers, consumer advocates, environmentalists and insurance companies until July 9. Under California law, the insurance commissioner must approve all changes in how rates are set. Poizner said the new regulations could be in effect by mid-November.
Proponents contend that the plan could create a variety of other benefits. Fewer vehicles probably would be on the road, which could curb traffic congestion as well as curtail global warming through the reduced greenhouse gas emissions spewed out of car tailpipes.
Poizner did not say how much the average motorist could save under such a plan. Similar products, which have been tried on a limited basis in 34 states as well as in Canada, Japan and Europe, have saved policyholders money. Premiums dropped by 13% to 54% for GMAC Insurance policyholders, whose mileage was monitored by parent General Motors Corp.'s OnStar satellite tracking system.
But drivers who have long work commutes or live in remote or rural areas might find it more economical to stick with conventional rates not based on exact miles driven.
No one would be forced to buy a pay-as-you-drive policy and no insurance company would be required to offer such a program, Poizner said. Rather, California's extremely competitive auto-insurance market should create "the right kind of financial incentives for insurance companies and consumers to begin to take some bold steps to reduce the number of miles driven," he said.
Major insurance companies, which over the last year have participated in hearings and workshops that developed the proposed regulations, said they were at least conceptually on board with setting rates by the mile.
"The proposal has a lot of merit and is definitely something we might want to explore," said Brian Dwyer, senior vice president for automobile products at Los Angeles-based Farmers Insurance Group, a unit of Zurich Financial Services Group of Switzerland. (On Friday, Farmers finalized its acquisition of Woodland Hills-based 21st Century Insurance, a leading low-cost carrier.)
Motorists who opt for a pay-as-you-drive policy would have several ways to have their mileage measured under the regulations. Those options include odometer readings taken by insurance companies, auto-repair shops or smog-check stations.
Owners could also agree to install in their vehicles electronic transmitters that automatically report mileage to insurers. Insurers, however, would be prohibited from using such devices to monitor where a customer drives.
California insurance companies long have advocated for the ability to more closely base a customer's premium on the exact number of miles driven each year.
Under current state law, policyholders provide insurers with sometimes inaccurate estimates of their annual mileage. Under California law, the number of miles driven annually is one of three principal criteria for gauging a driver's risk of being in an accident.
"By allowing the option of verified miles, we can have more accurate and fairer rates for consumers," said Sam Sorich, president of the Assn. of California Insurance Cos., whose members include Geico Corp., Liberty Mutual Group and the automobile clubs of Northern and Southern California.
Environmental and consumer groups say they like Poizner's idea but fear the proposed regulations don't go far enough to ensure that a pay-as-you-drive program would be broadly available.
"Research shows that with greater customer participation, the benefits to the environment, accidents and savings that can be offered all increase dramatically," said Lauren Navarro, an attorney with the Environmental Defense Fund. "Most households would save money with widespread adoption of pay as you drive, and even more will see no increased costs but benefit from cleaner air."
Doug Heller, executive director of Consumer Watchdog, a Santa Monica advocacy group, complained that Poizner's proposal would give insurance companies too much leeway to decide whether or not to offer a pay-as-you-drive option to potential customers.
He said he feared that the regulations would allow companies to offer smaller discounts than they should for people who cut their driving by only modest amounts.
"It may be unrealistic to ask people to stop driving three days a week when maybe they could only carpool twice a month," Heller said. "These are flawed rules that could be made better."