California Insurance Commissioner Seeks Comments on PAYD Auto Insurance

California Insurance Commissioner Steve Poizner has issued proposed regulations for Pay-Drive (Usage Based Auto Insurance), and is accepting public comments on the proposal until 5 p.m., Thursday, July 9, 2009. According to the Commissioner, “Insurers frequently rely on consumers to provide their own estimates of the number of miles they drive annually. One problem with self-estimated mileage is that there is no reliable way for consumers to estimate miles to be driven and estimates may very considerably from the actual number of miles driven. In addition, while insurers are required to request insureds to re-estimate the number of miles to be driven annually at least every 3 years, insureds do not always respond to the request. As a result, insurers often either continue to use the previous estimate of miles to be driven annually or place the insured into a default mileage band. By making it possible to determine mileage more accurately, this regulation will advance more accurate and fair pricing of insurance for individual consumers, as contemplated by Proposition 103. This, in turn, may reduce premiums for some drivers and increase competition in the automobile insurance marketplace.” The proposed regulations note are consistent with provisions of voter-approved Proposition 103, which bases auto insurance rates on three mandatory rating factors: the insured’s driving safety record, miles driven annually and number of years of driving experience. Typically, an estimate of the driver’s annual mileage is used. But, “the Commissioner finds that basing the second mandatory rating factor on verified actual miles driven, rather than on estimated miles driven, may enable policyholders to reduce their premiums by driving less and create incentives for innovation in automobile insurance rating in California with numerous attendant benefits,” his proposal states. He suggests that actual mileage could be verified by:

• odometer readings of the insured, verified by an employer or agent of the insurer, or a third-party vendor retained by the insurer;
• odometer readings recorded by an automotive repair dealer;
• odometer readings obtained from smog check stations;
• a technological device provided to the insured that shall not be used to collect information about the location of the insured vehicle, but shall only be used to calculate auto insurance rates.

The proposal further states that the insurer should market and make available all verification methods it offers to insured equally, and that the insurer must use multiple mileage rating bands with the class plan for that program, with at least one mileage band for miles driven between zero and 3,999 miles, at least six mileage bands for miles driven between 4,000 and 15,999 miles, and at least one mileage band for 16,000 miles and above. Participation in a verified actual mileage program would be voluntary. Commissioner Poizner first suggested PAYD insurance in the summer of 2008, after which he held a public hearing on Oct. 20, 2008, to accept written and oral public comments. He indicated that the Environmental Defense Fund estimated that if 30 percent of Californians participate in this voluntary coverage, California could avoid 55 million tons of CO2 emissions 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 PAYD as one of the means to meet future climate change gas reduction targets, he said. For more information on the proposal, visit www.insurance.ca.gov. Written and public comments can be sent by e-mail or text attachment to: PubComments.2008-020@insurance.gov. Source: DOI Compliments of the Insurance Journal