Pay As You Drive Insurance Proposed In California

PAYD.jpg Last week, reported on the latest proposal by California State Insurance Commissioner Steve Poizner to implement a Pay-As-You-Drive (PAYD) program in California.
PAYD insurance plans already exist for costumers in 34 states across the US as well as areas in Canada, Japan, and Europe. And as gas prices remain high and concern for the environment grows, PAYD programs are becoming attractive to many policymakers.

Currently car insurance regulations require rates in California to be based on estimated annual mileage. The changes Poizner has proposed would base annual rates partly on the exact number of miles driven and would allow people to pay less if they drive less.
As GreenBiz reports, Poizner says he is “thrilled to pave the way for California drivers to obtain insurance that is more environmentally friendly and more accurately reflects driving habits.”
As people are incentivized to drive less, proponents claim that traffic and congestion will be lowered, there will be fewer accidents, and California will put out less carbon emissions. According to a study conducted by the Brookings Institue Hamilton Project, PAYD would generate 7 to 9 percent of the total CO2 reductions needed to meet California’s emissions targets for 2020.
In addition, nearly two-thirds (64 percent) of households in California would have lower premiums under PAYD. The average savings for that group would be $276 per vehicle per year (in terms of 2007 numbers).
The LA Times reported a few months back on a similar proposition introduced by Assemblyman Jared Huffman (D-San Rafael), though he has since withdrawn the bill in view of the changes in regulations proposed by Poizner.
“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,” said Poizner.


Many opponents of the program are in favor of cutting congestion, improving the environment, and reducing the amount of accidents that occur. However, they are concerned about how mileage is actually monitored.
Privacy advocates are up in arms that companies will install GPS devices mounted in individual vehicles, which will not only monitor how far you’ve driven, but where you are and even if you are driving recklessly.
In 2006, Britain’s largest insurance firm, Norwich Union, introduced a similar PAYD program that varied rates across mileage, age groups, driving-times, and locations. It was a program that offered big savings for many drivers. Yet the GPS based program has been nixed in just a short two years due to lack of participation. Many critics claimed that customers just didn’t like the “Big Brother attitude” – very few people wanted monitoring devices outfitted in their cars regardless of how much money it saved them.
Proponents of the new proposed California program are determined to not make the same mistake. According to, the new regulations would permit customers to verify their mileage using odometer readings, car repair records, or other devices that would not allow insurers to track drivers’ whereabouts and/or driving habits.
Other arguments against the program claim that PAYD systems reward urban drivers and ultimately punish those who live in suburban or rural areas.
“The grocery store could be nine miles away,” said Assemblyman Joel Anderson (R-San Diego), who voted against the Huffman bill. “I don’t want to punish people who live in the country.”
This voluntary program, however, would only partly base rates on mileage driven, and will also take into account traditional factors as well as where one lives. According to the Brookings Institute study, “Because geography is a key risk-factor, a roughly equal proportion of rural (62.4 percent) and urban (64.2 percent) California households save money with PAYD.”
Other anticipated outcomes of the program, from the Brookings study are:
* PAYD would result in an 8 percent driving reduction from light-duty vehicles.
* An 8 percent reduction in gasoline consumption would directly reduce CO2 emissions by 99 million tons.
* Estimated gross annual social benefits from an 8 percent driving reduction total $10.8 billion based on current driving levels, and $21.1 billion based on 2020 projections.
* The California state government would save $54 million annually based on 2006 data and $60 million annually based on 2020 projections.
For the complete article, click here.

Ashwin is an Associate Editor of Triple Pundit. He recently returned to the Bay Area after living in Argentina, where he wholeheartedly missed the Pacific Ocean. He is a freelance editor and media and marketing consultant.After a brief stint working in the wine world, when not staring blankly at a computer screen, you'll find him working on Anand Confections or at 826 Valencia, where he has been a long-time volunteer.

5 responses

  1. A better approach is simple and obvious: pay-as-you-drive (PAYD) auto insurance. With PAYD, insurance premiums would be priced per mile driven. All other risk factors will still be taken into account, so a high-risk driver would pay a greater per-mile premium than a low-risk driver.
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  2. 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.
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  3. New Jersey, Hawaii, New Hampshire and Pennsylvania also have served drivers well by keeping insurance rates relatively low, but drivers in other states have watched their costs skyrocket 100% and more between 1989 and 2005, according to a recent Consumer Federation of America report.
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