Car Insurance Rates Could Depend on How Much You Drive
If you’ve reduced your driving in order to save on gas, your auto insurer just may let you save on your premiums as well. Car insurers have always offered discounts for low-mileage vehicles that are seldom driven. However, these discounts are usually paltry and hardly an exact science. Now auto insurers have unveiled something called pay-as-you-drive (PAYD) insurance, or usage-based car insurance. Your premiums are tied directly to your odometer by using a device that measures how and how often you drive. Insurers have been working toward such a program for years, but now at least one insurer, Progressive, has actually rolled out PAYD insurance in a few states. By the end of 2009, the auto insurer hopes to offer the usage-based program on a national basis.
About Usage-Based Insurance
Insurers use a device that they put on your steering column in order to keep track of your mileage and driving habits. The machine keeps track of how much you drive, when you drive, and how you drive. The data the device collects is sent to your insurer through a cellular transmitter. Of course, traditional factors, such as your age, marital status, credit, etc., still impact your car insurance premiums as well as your usage of your vehicle.
The Costs & Benefits
One insurance representative estimates that customers could save up to 60% on their property damage and liability premiums. Of course, that’s based on someone who drives very little. A drawback to PAYD insurance is that it might hurt more than it helps for some policyholders. For example, if you drive primarily at night or drive fast, you might have up to a 10% surcharge on your premium bill. The tracking devices measure all of this data, and it directly affects your premiums.
Environmental Benefits
Groups like the Environmental Defense Fund fully endorse PAYD insurance because they say it provides consumers a financial incentive to drive less. Less driving means less harm done to the environment and a reduced demand for oil. The Environmental Defense Fund estimates that usage-based car insurance could reduce traffic congestion and driving by 10%-12%. Aside from benefitting the climate through less pollution and toxic runoff from streets, a 10% reduction in driving would reduce car accidents by 17%. Environmental groups urge insurers to go forward with such programs on a nationwide scale, pointing to other countries, especially England, that have already had success with PAYD insurance.