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 insurerswilling to offer coverage that ties premium rates to the number ofmiles driven has for the most part been ignored by insurers in thestate.

The "Pay-As-You-Drive" statute (H.B. 2043), which is due to takeeffect Nov. 26, gives insurers tax incentives if they voluntarilyimplement auto rating programs that base premiums on milesdriven.

The intent of the law was to create a rating method that moreaccurately mirrors loss exposure and provides incentives to driveless, according to the Oregon Environmental Council, a non-profitenvironmental group that backed the law.

"No insurance companies have filed any rating programs underthis law," noted John Piper, a spokesperson for the OregonInsurance Division. "Their incentive to file would be a reductionin 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 involvedin switching to a new type of rating method. "Insurers haveconcerns about how to accurately track the miles driven," Mr.Blevins added.

Bloomington, Ill.-based State Farm Insurance Companiesspokesperson Dick Leudke explained that the benefits of chargingpremiums by the mile must be weighed against the costs, and that atthis time the costs seem to outweigh the benefits.

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

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

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

Progressive tried a "usage-based" auto insurance program inTexas in 1998, noted Mary Beth McDade, a spokesperson for theMayfield Village, Ohio-based insurer. The program used globalpositioning satellite and cellular technology to track vehiclemileage.

However, Ms. McDade indicated that the program was discontinuedbecause auto manufacturers never designed this technology intotheir vehicles to the extent that Progressive had expected theywould.

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