Car Insurance by the Mile

It seems that every week gas prices rise. Lots of people are trying to find different ways to save on the cost of gasoline. Some take the bus, others a train, while others try car-pooling with friends and co-workers. Drivers are still paying for full auto insurance coverage on their vehicles despite trying to save money in other ways.

It seems at times that some corners just can't be cut, like having affordable yet reliable car insurance coverage. That is not always the case, however. Auto insurance companies are starting to introduce a new insurance program to their customers. It will offer consumers a lower rate for driving their car less. Some companies are already trying out this program on a trial basis.

An organization named Environmental Defense is a huge supporter of this new program. They promote a new Pay-As-You-Drive Insurance program, also known as PAYD, to car insurance companies that are found throughout the United States. This newest concept would link insurance rates not just to a 6-month or 12 month payment date, but to an odometer.

Environmental Defense states that PAYD would save consumers money and also help reduce pollution from the amount of driving most people do. According to an Environmental Defense official,"PAYD provides financial incentive for driving less and is expected to reduce driving and congestion by 10 to 12%", "Driving less reduces air pollution, toxic runoff from roads, and impacts on climate."

More Affordable Auto Insurance

Automobile insurance would be more affordable for drivers by giving them an opportunity to take control over their auto insurance premiums. This change is something the National Organization of Women's Cents Per Mile group would be very pleased to see. As of now, low-income drivers still have to pay a higher insurance rate, even though they are driving lower miles than other customers. Subsequently, they end up dropping their auto insurance policies, or just not renewing them. With this new program underway, non-insured drivers will decrease, and low-income and part-time drivers will see a reduction in their car insurance bill.

How does PAYD work?

At this time, there are two techniques that may be utilized to detect how much mileage you put on your car. One way is to install a proprietary odometer into the vehicle. It would have a cell phone embedded into it that will occasionally relay your mileage to your insurance company. Installing a GPS device into an embedded phone, like OnStar, is another way to track your driving mileage; some groups do not like these methods because of the privacy infringement it could possibly cause. But having a GPS system does have many advantages. While it would be tracking your mileage, it would also keep track of where and when you drove. You would be able to measure the cost of driving in a busy area during rush hour, and see how much you might save if you drove during off-peak hours.

What would be the cost?

An auto insurance company would take your current annual rate and convert it into a per mile fee, while assigning your vehicle to one of their rate groups; that would be according to your zip code, type, and usage. They would determine a per mile rate, and then ask you to pay an upfront and set fee, determined on the number of miles they believe you to drive. You would then either receive a rebate or pay more, depending on how much you end up driving.

Testing the Program

There are two programs that are currently testing this new idea in the United States: OnStar is one. They have joined with a national insurance company to offer this new mileage discount program. This program is offered only to people who own a GM vehicle that has OnStar, and gives those the opportunity to receive a discount based on their mileage. GM motorists may receive a discount up to 40% that could annually save them hundreds of dollars. Discounts will be given to those that drive less than 15,000 miles a year. If you drive less, you get more of a discount. Right now, the program is offered only in four states-Arizona, Indiana, Illinois, and Pennsylvania.

Minnesota is the other state that is offering a program for this new insurance program. This program is designed for those that own a 1996 model vehicle or older. An electronic device, currently the size of a matchbox, is plugged into the owner's onboard Diagnostics port, also known as ODBII. When it is installed, it can detect how much the vehicle is used, when, and how fast it is driven. That information is then taken to calculate what discount the customer will receive. This is presently a free and voluntary program that may save motorists up to 25% on their car insurance rates.