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Much Ado About Nothing? New State Rules for “Pay-As-You-Drive” Insurance

10_19_09_meter.jpgI'm guessing his car insurance would be higher than mine. Photo: Clubjuggler/Flickr

Last week, State Insurance Commissioner Steve Poizner announced that his commission adopted new rules allowing and encouraging auto insurance companies to create "pay as you drive" (PAYD) insurance policies.  PAYD policies, which charge drivers per mile driven for their insurance, provide another financial incentive for drivers to reduce their vehicle miles traveled.  The new rules can be read here.

The state has received a spate of good press for the new rules, most of which uncritically tell readers
that they can expect the new policies to be offered as soon as the end
of this calendar year.

One might think that a state with a green reputation such as
California would be a leader in bringing PAYD policies to its car
drivers.  However, the new rules have come under fire from
environmentalists who say they don't go far enough to bring about
the changes that California's more green-minded drivers need.

Justin Horner, a policy analyst for the National Resources Defense Council, said in a release today, "Our auto insurance policies are sorely behind the times. No one should be fooled. The new regulations proposed today cannot be characterized as green. They are nowhere close to what is needed to help the environment or reduce global warming pollution." 

Horner explains further on The NRDC Switchboard that California's new rules barely get the state half-way where it needs to be:

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 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 allow insurers to
offer a voluntary mileage verification program.

As Horner notes, without setting a clear price and requiring insurers to offer PAYD policies, the state is leaving the decisions to the whims of the insurance companies and possibly making the policies less transparent to consumers.  Where is the guarantee that any of the insurers will voluntarily offer the reduces rates for drivers who try to do the right thing?

The NRDC notes that strong rules on PAYD programs could lead to up
to a massive reduction in Greenhouse Gas emissions throughout the
state.  Unfortunately, California has chosen to be a follower rather
than a leader on this issue. Thirteen other states have already included the concept in their Climate Action Plans and some insurance companies on the east coast are even offering incentives to policy holders who commute by transit.

Updated 4:19 pm: Darrell Ng, from the California State Department of
Insurance emailed me the following comment, which I agreed to print in

The question comes down to one ofconsumer choice. We believe that given the opportunity to savesignificant amounts of money by driving less, many people will do sowith the Pay As You Drive program. However, we do not believe thatpeople should be forced to use Pay As You Drive. If a consumer is happywith their current insurance, it will continue to beavailable in the market.

Matthew Roth contributed reporting to this article.

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