Insurers Ignore ?Pay-As-You-Drive' Law

By Gary Mogel

NU Online News Service, Sept. 29, 10:43 a.m. EDT?An Oregon law providing incentives to auto insurers willing to offer coverage that ties premium rates to the number of miles driven has for the most part been ignored by insurers in the state.

The "Pay-As-You-Drive" statute (H.B. 2043), which is due to take effect Nov. 26, gives insurers tax incentives if they voluntarily implement auto rating programs that base premiums on miles driven.

The intent of the law was to create a rating method that more accurately mirrors loss exposure and provides incentives to drive less, according to the Oregon Environmental Council, a non-profit environmental group that backed the law.

"No insurance companies have filed any rating programs under this law," noted John Piper, a spokesperson for the Oregon Insurance Division. "Their incentive to file would be a reduction in their excise and income taxes for the tax years 2005 to 2009," he said. Mr. Piper did not pinpoint any exact reasons for insurers' lack of interest.

Matt Blevins, program director for legislative affairs with OEC, said that insurers are concerned with the start-up costs involved in switching to a new type of rating method. "Insurers have concerns about how to accurately track the miles driven," Mr. Blevins added.

Bloomington, Ill.-based State Farm Insurance Companies spokesperson Dick Leudke explained that the benefits of charging premiums by the mile must be weighed against the costs, and that at this time the costs seem to outweigh the benefits.

Mr. Leudke noted that installing the required technology in the vehicles, and the option of having insurer employees make mileage readings, were too costly. "It would also be asking too much of policyholders to have to drive somewhere so their miles could be read," he added.

Such a program would also not improve the measurement of risk, according to Mr. Leudke. "Not all miles driven are equal," he pointed out. "Driving a mile on the interstate is not the same as driving a mile in Manhattan."

"To my knowledge, Oregon is the only state that has enacted this type of law," OEC's Mr. Blevins said. "Norwich Union in the United Kingdom has such a program. Also, Progressive Insurance did a pilot program in Texas, but it was not adopted."

Progressive tried a "usage-based" auto insurance program in Texas in 1998, noted Mary Beth McDade, a spokesperson for the Mayfield Village, Ohio-based insurer. The program used global positioning satellite and cellular technology to track vehicle mileage.

However, Ms. McDade indicated that the program was discontinued because auto manufacturers never designed this technology into their vehicles to the extent that Progressive had expected they would.

"I don't know why the vehicle manufacturers did not use this technology," Ms. McDade said. "Whether it was cost or privacy concerns, you would have to ask them [the manufacturers] about that." She added that Progressive has no immediate plans to reintroduce the usage-based program.

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Insurers Ignore ?Pay-As-You-Drive' Law

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