California Considering Pay-As-You-Drive Auto Insurance

California’s Department of Insurance is hosting a workshop at 10 a.m., Monday, June 23, 2008, to solicit input on bringing “pay-as-you-drive” automobile insurance to the state.

According to the DOI, California Insurance Code requires automobile insurance rates to be based on three mandatory factors in decreasing order of importance, with the second mandatory factor is “the number of miles [the insured] drives annually.” Under the current regulations, the annual mileage factor is defined as an estimate of the number of miles an insured vehicle will be driven in the next year. The regulations specify how the mileage estimate may be determined. However, insurers establish their own mileage rating brackets for rating purposes. Mileage rating brackets vary significantly from carrier to carrier, but DOI said no major insurer in California offers an option that adjusts the price of auto insurance based on the exact number of miles the insured actually drives (pay-as-you-drive).

Consequently, the Department intends to adopt regulations with the goal of making PAYD insurance widely available in California and to encourage participation.

The PAYD workshop will seek input on bringing the system to the state from persons who are interested in regulations that would implement PAYD, including those who would be subject to the regulations. The workshop also is intended to satisfy the pre-notice public discussions requirements of California Government Code Section 11346.45 and will precede any official public notice issued pursuant to California Government Code Section 11346.4.

The Department said it specifically seeks constructive input on the following issue:

Rating issues
– Appropriate mileage brackets for PAYD (pay per mile, 10 miles, 100 miles)
– Separate program options for PAYD.
– How could PAYD be incorporated into existing automobile programs?
– Statutory good driver issues. If PAYD is offered through a separate program and has its own class plan, how would an insurer group make sure that every good driver is placed with the insurer that offers the lowest rates as required by Insurance Code section 1861.16?

Mileage verification issues
-Appropriate technology (GPS, wireless transmission of odometer information, others, manual collection of odometer readings)
-Verification timetable (real time, monthly, quarterly, annually)
-Privacy and security issues

-What data would be required?
-How would the data be collected?
-How would the data be used?
-How would electronically transmitted data be secured?
-Who would have access to the data?

-What incentives may be necessary or desirable?
-Insurer incentives to offer PAYD programs
-Consumer incentives to participate in PAYD programs

-Pros and cons of requiring disclosure of mileage brackets (and mileage factors) to consumers (on web site, through agent contact, email, direct mail, other)?
-Optional versus mandatory participation by insurer and/or insured
-Phased implementation possibilities.

To attend the workshop being held at 10 am. on Monday, June 23, 2008, go to:
California Department of Insurance
45 Fremont Street, 22nd Floor Hearing Room
San Francisco, CA 94105

Notice of attendance and written comments should have been sent in advance of the workshop to:
Ms. Sara Urakawa
California Department of Insurance
Rate Enforcement Bureau
45 Fremont Street, 21st Floor
San Francisco, CA 94105
Telephone: (415) 538-4121
Facsimile: (415) 904-5490

Source: CDI