California Moves Closer to Insurance by the Mile for Drivers
November 10, 2009 10:57 AM
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Watchdog group says new rules give insurance companies all the power
In many states in America, auto insurance is a requirement. This is a good thing since that means any accidents that happen will be sure to have coverage by both drivers. The problem according to some drivers and insurance companies is that drivers that drive more miles and have a higher chance of accidents pay the same amount as drivers who drive significantly less.
California is closer to allowing insurance companies to
sell insurance by the mile
to drivers. This would mean that drivers who drive more would pay more than others would. The Sacramento Bee reports that Insurance Commissioner Steve Poizner has released regulations that will permit and authorizes insurance companies to verify mileage as part of insurance plans based on miles driven.
The ultimate goal of the new insurance plan in California isn’t to save drivers money, but to encourage people to drive less. Less driving will reduce the pollution in California, the number of accidents and ease traffic congestion according to lawmakers. California isn't the only state with insurance plans based on miles driven. Texas has such plans provided by a company called MileMeter that offers six month policies with chunks of mileage ranging from 1,000 miles to 6,000 miles.
MileMeter CEO Chris Gay said, "We absolutely anticipate coming to California." He continued, "Our take is that half the market out there is being overcharged and underserved – and that's who we aim to address."
Conventional mileage based policies would reportedly take an estimate of projected mileage for a year and then refund or bill the driver depending on the actual miles driven. Mileage could be verified in several ways such as at smog check stations, DMV records, and via electronic devices attached to the car.
The fear with mileage based insurance plans is that there will be a push to charge drivers to drive longer distances each year more money in insurance rates. However, there is reportedly no plan to do that at this time.
Two thirds of homes in the country would save about $270 per year per car with mileage based plans according to a study from Brookings. However, Carmen Balber from Consumer Watchdog says that the new policies cater to the insurance industry and don’t require the premiums to reduce when driving does.
"I think the regulations were drafted to guarantee that insurers win, because they were left with all of the choice," Balber said.
Insurance companies are taking the new proposal seriously and Michael Gunning, VP of the Personal Insurance Federation of California said, "Given the competitive nature of the marketplace, I think this is going to be a selling point for companies."
The members of the federation write more than 50% of all auto policies in California. Drivers concerned about their privacy with policies requiring a device be connected to the car need not be concerned according to lawmakers. Regulations prevent the devices from recording location information about the vehicle. However, Balber maintains that the mileage devices give insurance companies a foot in the door to push for the right to collect other data. Future policies could possibly rate drivers higher if they drive in high crime areas frequently.
There are also proposals in the works that would
regulate gas taxes on a per-mile basis
using GPS tracking.
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RE: Per Mile Tax
11/11/2009 1:31:55 AM
Pay per mileage insurance and pay per mileage taxes are two VERY different beasts in my mind. The former I think is a reasonable idea, the latter is wasteful and stupid.
Pay as you drive insurance will be entirely private-sector (assuming you don't have government run insurance like some folk up here in Canada have). It offers another option which, in a free market, is a good thing in my mind. People can vote with their wallet and select to use or not use this product.
Pay as you drive tax (particularly as a replacement for gas taxes) is just dumb. It's needlessly complex and will be subject to massive government waste and incompetence. I also don't much like the idea of the government tracking me by GPS. While this COULD be done by simply measuring mileage (as is common with PAYD insurance), ALL the government-run programs seem to insist on GPS tracking.
What's more though it doesn't really make any sense from the point of view of any stated objectives. If the goal is to reduce fuel consumption than charge more tax for gasoline. MUCH simpler and much more effective. If the goal is to reduce pollution than tax based on actual pollution produced. If the goal is to reduce wear and tear on roads then this is best served by a factor of miles driven and vehicle weight, but a REALLY simple and accurate approximation here is gasoline consumed (heavier vehicles tend to use more gas, and more miles obviously uses more gas), so raising gas taxes again is a much simpler and easier solution.
All of these could be used by governments to increase revenue from consumption tax and reduce the amount of income tax they charge (yeah yeah.. I'm dreaming in Technicolor here, I know).
Of course, if the goal is simply to charge more tax and bloat the government then pay-as-you-drive tax makes sense.
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