The pay-as-you-drive auto insurance policy is gaining momentum in the industry.
Pay-as-you-drive insurance bases premium paid by the insured on the individual’s specific driving habits. Computers within the car monitor how much and how safely individuals drive. including how cautious they are. The monitoring devices are the latest in telematics, the technology of computers on the go communicating with central devices. (GPS devices are the most common example.)
How it Works
In the United States, Progressive Insurance is one of the first to utilize the pay-as-you-drive method of assessing appropriate insurance premiums. Progressive has launched its Snapshot product which uses an on-board computer standard in cars built after 1996. The computer monitors driving and the Snapshot device plugs into that computer and sends information to Progressive. If a customer’s driving habits are better than average, he or she gets a discount. After 30 days, a customer could log on to see what discount was earned and how to do better. The service is available in 32 states.
Others Following Progressive's Lead
In December, State Farm and the Automobile Club of Southern California launched a similar 'pay-as-you-drive" program. A report in Streetsblog San Francisco indicated State Farm’s program used the OnStar system to capture odometer readings.
Pay-as-you-drive proponents emphasize two primary policy benefits that they say leads to safer driving for customers. The rapid feedback gives an incentive to drive safely. And insurance is all about good risk management. The second is of course the incentive to drive less because these programs base part of the premium on the amount of miles driven. In fact, the Brookings Institution estimated savings up to 8 percent in California. Decreased miles driven also reduces energy consumption and unclogs the roads a bit; which also presumably leads to improved safety through fewer collisions.
