Pay-As-You-Drive Insurance: Mileage Based Insurance Policies

December 31st, 2010
New Car on Money road

Insurance companies across the United States are beginning to test and implement a new program, changing the way American’s pay for their car insurance. The new insurance program allows drivers to pay a rate for their insurance based on the amount of miles driven. The Pay-As-You-Drive program creates a personalized program for drivers, opposed to the blanket policies of the past. The concept is simple. Drive less. Pay less. No longer will drivers have to pay one flat rate for their insurance, despite their low mileage or automobile involvement.

The Pay-As-You-Drive program is not available in all states and is a policy that must be approved by individual states insurance departments. As of 2009, there were 34 states that have approved the change in insurance.  Although, the states may have approved the program, many insurance providers have failed to adopt the Pay-As-You-Drive option.

Progressive has paved the way for the new program and created the option of service in 9 states: Alabama, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Missouri, New Jersey and Oregon.

Pushing forward into the year 2011, California announced their approval of the Pay-As-You-Go automobile insurance program. California Insurance Commissioner Steve Poizner stated, “I have approved a very innovative product, the first of its kind here in California, one of the first in the world, that will allow consumers to have some choices when it comes to purchasing auto insurance here in California.”

The reasoning behind the new option for insurance was not simply to lower the rates of insurance for drivers but additional incentives were discussed by Poizner. “If by providing these financial incentives we can encourage people to drive fewer miles, then there’ll be less traffic accidents, there’ll be less air pollution, less gasoline consumption.”

The policy, scheduled to begin February of 2011, is estimated to help save drivers anywhere between 1 to 10.5 % of their current policy rates, according the California Department of Insurance.

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