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Pay-As-You-Go Car Insurance Coming to California

A certain form of pay-as-you-go auto insurance has been approved by the state of California, with policies set to be available early in 2010. One important component of the pricing of most car insurance policies nationwide is the number of miles policy owners tell insurance companies they drive each year. The specific type approved by the state of California in some cases requires proof of miles driven, with several ways of reporting mileage available.

An Overview of California's Verified Miles Auto Insurance Plan

California's Verified Miles Plan for auto insurance gives car coverage providers more freedom to emphasize the number of miles driven in their pricing strategies, while it also will help many drivers who do not drive a lot of miles to save money on their insurance rates. Under the Verified Miles Plan, policies can be bought by the mile, in a bulk package. A driver could pre-pay for coverage for 20,000 miles driven, for example, instead of paying for a six-month or one-year coverage period the way they do when buying traditional policies.

Some companies participating in the Verified Miles Plan will, however, likely require actual evidence of miles driven, unlike traditional policies which largely rely on the honor system. Many drivers do report underestimating their mileage in an effort to save money on their rates, and this system will help prevent that kind of thing from happening. Mileage verification can happen in many different ways, such as via an agent checking miles, an automobile shop looking at the mileage on a car or a GPS-like device tracking the vehicle's odometer [1]. The state's plan does give some flexibility for insurers to create plans based on mileage estimation rather than verification [2]; the specifics are largely up to the insurers, as long as their plans are approved by the state.

California state officials in support of the Verified Miles Plan are hoping the pay-as-you-go option will promote reduction in miles driven by California drivers. Several positive side effects could come about as a result in such a reduction; among them are reduced emissions of environmentally-damaging greenhouse gases, lower accident rates along California roads and freeways, and simple monetary savings on insurance rates for California drivers. The thinking behind the measure is that it may create an environment more conducive to California drivers choosing alternative means of transportation or even carpooling as a way of keeping their miles down and their automobile insurance rates low.

The California Verified Miles Plan will be strictly optional for state drivers, and traditional car insurance policies will continue to be available. These more traditional policies with rates set by the calendar rather than by miles driven will probably continue to be more favorable for drivers who put a lot of miles on their vehicle and have no way to significantly cut down on their driving, such as salespeople and other professional commuters, and people who drive long distances to get to work each day and have no co-workers living near them to share a ride with.

The California Verified Miles Plan will be ready and available for consumers to purchase plans as early as January of 2010. In the meantime, car insurance companies must submit their plans for administering these policies to the state for pre-approval in order to begin offering them to their customers.

Under California's Proposition 103 which was approved by voters in the late 1980s, state auto insurance policy premiums are already partially determined by the number of miles vehicles are driven. However, up to this point, insurers have been somewhat hamstrung by an inability to verify mileage estimates provided by customers, instead relying mostly on an honor system. The new Verified Miles Plan gives providers the option of providing coverage based on verified mileage, eliminating the chance of abuse of such an honor system setup.

What California Could Learn from Texas' Pay-As-You-Go Program

Though companies have experimented in states across the country with different forms of pay-as-you-go car insurance, perhaps the most instructive example of an effective and successful system is the one in place in Texas, offered by a company called MileMeter. The idea behind MileMeter's version of pay-by-the-mile auto insurance is to give drivers a financial incentive to reduce their driving and cut down on the miles they travel, making them more aware of their opportunities to be more efficient in their travels by making it economically profitable to do so. Getting drivers to cut down on the number of miles they travel in their vehicles would cut down on their household fuel costs as well as their insurance premiums, and would also decrease oil consumption [3].

MileMeter was the first company in the world to develop its particular variety of pay-as-you-go car insurance, and the company is up and running and fully licensed by the Texas Department of Insurance. An interesting feature of the MileMeter plan is that customers do buy coverage in traditional six-month increments, and are guaranteed not to be without coverage for those six months, even if they drive over their allotted number of miles. Thus, the system seems to combine one of the chief advantages of traditional policies with the potential savings of pay-as-you-go rewards. Mileage blocks can be purchased in increments of anywhere from 1,000 to 6,000 miles, so drivers who can closely predict their mileage every six months do not have to waste money overbuying their coverage.

MileMeter allows customers to buy any variety of coverage, just like its traditional competitors. Drivers in Texas can purchase just the state minimum liability coverage, or they can add on comprehensive and collision, as well as uninsured and underinsured motorist coverage. The company only sells policies online, which is claims allows it to keep its prices lower by cutting down on it overhead [4].

What's Next for California Car Insurance Customers?

As the Verified Miles Plan gets underway with plans in the works for policy sales starting in January of 2010, companies are scrambling to get their proposals together and to the state for approval. MileMeter founder and CEO Chris Gay said the company "absolutely" plans to expand into California [2], meaning it will more than likely be added to the number of options California policy holders have to choose from in potential car insurance suitors.

California drivers will have some choices to make when it comes to their auto insurance plans once the state's Verified Miles Plan gets underway in 2010. For many low-miles drivers, the plan will give them a chance to reduce their rates on insurance and stretch their dollar a bit further. On the other hand, high-miles drivers may be looking at increased charges down the road if the state continues focusing on ways to reduce miles driven by Californians, although as of yet no such initiative is under way. Regardless, the advent of such a system is a pertinent reminder to drivers in California and interested parties nationwide that the economic and environmental consequences of our driving habits will become more of a political issue as the 21st century wears on.

[1] http://abclocal.go.com/kfsn/story?section=news/politics&id=7069458 Retrieved 2009-12-06.
[3] http://www.fastcompany.com/blog/terry-tamminen/green-guru/would-you-carbon-insurance-latte Retrieved 2009-12-06.
[4] http://www.milemeter.com/info/at_a_glance Retrieved 2009-12-06.

 

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