Are Auto Insurance Rates Switching to Pay-Per-Drive?

By: David Schneider, Car Insurance Expert
CheaperCarInsurance.com

There are changes brewing in states like California and Texas with regards to auto insurance rates. While drivers have been paying a lump sum for car insurance based on the average amount of driving a policyholder drives, some auto insurance companies are considering a change to the structure of their auto insurance rates.

In states like California, where there are too many drivers on the road, which causes pollution, congestion and accidents, car insurance companies are working on a pay-per-use system that would only charge drivers for insurance for the miles they actually drive. This system, insurers hope, will encourage people to drive less to save money. The benefits of a pay-per-drive system include:

• Fewer environmental and pollution problems
• Less congestion on roads
• Fewer accidents
• Drivers can save substantially on car insurance

Fewer accidents make insurance companies happy, since they have fewer claims to pay. The cost savings is spread to everyone.

How It Works

Think of a pre-paid cell phone. You pay in advance for minutes you will use. You don’t pay for any extra minutes, and once you’ve used them all, you buy more. There are several ideas on how to charge policyholders for their car insurance:

Pay at the Pump

One idea is to charge an added fee at the gas pump for your insurance. For each gallon of gas you pump, you would pay a fee, such as $.15 per gallon, for your insurance. The advantage to this is paying in smaller chunks for insurance as you use it, versus a larger amount every 6 months. The disadvantage is: it will take consumers a while to adjust to paying more for anything at the gas pump.

Pre-Paid Plan

Rather than purchasing a car insurance policy for 6 months, a policyholder would buy a plan based on the mileage he expects to drive. Once the vehicle reaches that mileage, more car insurance has to be purchased. Mileage can be verified in one of several ways: by visiting an authorized auto shop or insurance agent office, by installing a special device to read mileage, or via GPS.

Advantages to Drivers

Many drivers don’t drive even the average amount in a year, yet they are paying the full auto insurance rates set by their insurance companies. Using a pay-per-use plan provides these drivers with the ability to save and be rewarded for driving less frequently.

For drivers who drive more than the average amount, this plan will make them more aware of how much they drive, as they will be paying a premium for the additional miles they drive. This may encourage them to cut back on how much they drive or find alternatives to a car for transportation.

This car insurance plan has surprising health benefits as well. Because insurers believe the changed rate structure will encourage people to get out of their cars, they may use health as a way to get around, such as walking or biking. Health improvements include;

• Losing weight by walking or biking
• Improving overall health through regular exercise
• Discovering how to feel better through exercise can lead to lifelong exercise plan

Driving less means a driver’s risk of accident is greatly lowered. Driving and commuting causes high levels of stress (see chart), which can be reduced simply by not getting in the vehicle as often.

According to Frost & Sullivan, there are many stressful situations found while driving.

When Is This Program Coming to My State?

California is an early adopter when it comes to programs that benefit the environment and consumers. Give this new auto insurance rate adjustment program a few years to catch on, and the rest of the country will soon follow.

If you live in California or Texas, check with your auto insurance company to see if it has plans to adopt the pay-as-you-drive plan any time soon. Express your interest in seeing it implemented to help the process, and we can all soon take advantage of a better way to pay for car insurance.