California Commissioner Proposes Pay-As-You-Drive Regulations

California Insurance Commissioner Steve Poizner has proposed regulations that would make green auto insurance option available for California consumers. If implemented, pay-as-you-drive auto insurance would allow motorists to more accurately pay for the coverage they need, by linking their premium more closely with the number of miles they drive.

Any incentive like this to get people to drive fewer miles will help reduce greenhouse gases and vehicle accidents, the Commissioner indicated. “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. “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.”

Current auto insurance regulations require that rates are based on estimated annual mileage. The new regulations will provide an additional option for actual mileage, allowing insurers to offer a voluntary option for consumers who are interested in pay-as-you-drive coverage.

Under the new regulations, consumers could verify mileage by odometer readings, automotive repair records, or a technological device used to collect mileage data. Commissioner Poizner’s regulations would explicitly prohibit insurance companies from requiring policyholders to participate in a pay-as-you-drive program.

Earlier this year, consumer advocacy group Consumer Watchdog expressed opposition to a PAYD proposal that they said would invade privacy. Assembly Bill 2800, which was sponsored by Jared Huffman, D-San Raphael, and passed the Senate in August, would have forced “drivers to choose between fair insurance rates and protecting their privacy,” the group said.

“No driver should have to make that choice,” said Carmen Balber for the group. “Where I drive, when I get there and whether I stop on the way is not the business of my insurance company, or any other corporation who wants to place eyes in my car.”

According to the group, nothing in Huffman’s bill prohibited insurance companies from tracking whatever information they choose — including speed, acceleration, location and time of day, in addition to mileage. The bill would have allowed insurance companies to give discounts for driver participation in a tracking program, but does not mention discounts for drivers who actually reduce their mileage, the organization said.

However, a spokesman for Huffman said that the Assemblyman has decided not to push forward on the bill through the Legislature, now that the Comissioner has proposed regulations. And Consumer Watchdog is pleased with the Commissioner’s proposal.

“Regulations that implement Proposition 103’s mandate that insurance rates reflect 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 author of Proposition 103 and founder of Consumer Watchdog. “They will also give consumers a financial incentive to carpool and promote mass transit and other transportation technologies that can reduce the impact of driving on our environment and our costly reliance on oil. Assembly Member Jared Huffman’s attention to this important issue, along with other organizations, led to today’s announcement. We also applaud Commissioner Poizner’s prompt action in drafting the proposed regulations.”

As a former Silicon Valley entrepreneur who founded SnapTrak, a company that pioneered technology to put GPS receivers into cell phones, Poizner understands firsthand that GPS can be a life-saving tool when used appropriately. However, Poizner has also said this type of technology does not have a place in pay-as-you-drive auto insurance for privacy and public policy reasons.

“California has always been at the forefront of technological innovation. A major priority for the Department of Insurance is harnessing this technology to benefit consumers,” Poizner said. “At the same time, it is vital that the privacy of drivers remains intact. I will not approve any auto insurance policy that aims to utilize GPS devices in order to obtain location data from consumers.”

California law has procedures in place to allow for public involvement in adopting new regulations. After these procedures are completed, the regulations will take effect – not later than fall 2009. Insurers will then be able to apply to offer this product in California, the DOI said.

The Environmental Defense Fund estimates that if 30% of Californians participate in this voluntary coverage, California could avoid 55 million tons of CO2 between 2009 and 2020, which is the equivalent of taking 10 million cars off the road. This would save 5.5 billion gallons of gasoline and save Californians $40 billion dollars in car-related expenses. Additionally, the California Air Resources Board has recommended the adoption of pay as you drive as one of the means to meet future climate change gas reduction targets.

To view the Commissioner’s proposed regulations, visit http://www.insurance.ca.gov/0400-news/0100-press-releases/0070-2008/upload/PAYDproposedregulationtext082708.pdf.

Sources: Assemblyman Huffman’s Office, California Legislature, Consumer Watchdog, DOI