Progressive paid Harris Interactive to conduct a telephone survey of 1,000 US adults in August, and determined:

70 million + drivers in the US could save with usage-based insurance
50% of respondents say they drive under 12,000 miles per year, below than the national average of 13,476 miles a year;
84% of drivers define themselves as cautious, 49% as defensive (39 percent); and
88% of drivers are rarely on the road between 12-4 am

All these conditions point to Pay as you drive car insurance as the future and fast becoming the present.

Sequoia Insurance Company of Monterey has been approved by the California Department of Insurance to sell so-called “pay-as-you-drive” auto insurance.

Sequoia Insurance is now approved to sell pay as you drive in California along with AAA of Southern California and State Farm Mutual Automobile Insurance.

“The voluntary initiative is an innovative program that allows insurers to offer plans based on more accurate mileage,” says Insurance Commissioner Dave Jones.

Typically, rates are based on mileage estimates. This program allows motorists who drive fewer miles to save money by only being charged for the insurance they need and use. It’s a voluntary option for California drivers.

By Cornelius Frolik

A popular program that offers premium discounts to motorists who agree to have their driving patterns digitally recorded worries some privacy advocates who say it is needlessly intrusive and could pave the way for future infringements.

About 250,000 Progressive customers have participated in the company’s Snapshot program in the hopes their driving behavior will earn them savings.

To partake, motorists attach a device to their vehicles’ onboard diagnostic computer that then records and transmits data to the company for six months. It measures miles driven, driving times, braking patterns and speed.

“Snapshot is a voluntary, discount-only program,” said Brittany Senary, a spokeswoman for Progressive, Ohio’s second largest auto insurer.

But Paul Stephens, director of policy and advocacy with the California-based Privacy Rights Clearinghouse, said the device also measures the time of day the vehicle is in use, which is unfair to people who work odd hours. The next step could lead insurance companies to monitor other elements of their customers’ driving behaviors, he said.

“We are on a slippery slope,” Stephens said. “They start out by collecting a little bit more information than they need … then where does it stop?”

He added the information could hypothetically be subpoenaed by law enforcement agencies in police investigations.

The device Tina Brandon attached to the steering column of her car and van looks like a futuristic garage-door opener, but instead of operating doors, it records data and saves her money.

The device, called a Snapshot, records and transmits the number of miles she drives, her speed, the time of her trips and her braking behavior. The data then goes to her insurance company, Progressive.

Brandon, 40, of Huber Heights, said her safe driving behaviors have already cut the cost of insuring her van by about $100 annually. She hopes the Snapshot program will slash the cost of insuring her car.

“Every little bit counts in today’s society,” she said.

Brandon is one of about 250,000 Progressive customers who have signed up for the company’s Snapshot program in the hopes that digital documentation of their driving habits will result in a savings of up to 30 percent off their insurance bills.

Insurance companies typically set rates based on a customer’s age, gender, place of residence, traffic record, accident history and credit score. But as technology improves and becomes less expensive, some insurance companies are using high-tech methods to set and lower their customers’ insurance rates.

Privacy advocates, however, warn that improved technology can reduce customers’ expectation of privacy.

Progressive, which is the second largest insurer in Ohio, began offering the voluntary, usage-based insurance program in the state in June 2010, and rolled out an associated advertising campaign this year. Flo, the perky character in the Progressive commercials, discussed the Snapshot in a recent ad.

Customers who have vehicles made in 1996 or newer are eligible to participate in the program, because those cars and trucks have diagnostic ports that connect to their on-board computers that track relevant information, said Richard Hutchinson, usage-based insurance general manager with Progressive.

After signing up, customers receive a Snapshot device in the mail that they plug into the computer port. Using the cellphone network, the Snapshot transmits data about the vehicle’s movements and the motorist’s driving habits.

After 30 days, Progressive reviews the data to determine if the customer is a eligible for a discount, which is applied immediately. At the end of six months, the customer returns the Snapshot and the company then determines if their driving patterns earn them a discount that will remain on their policy.

“On average, Snapshot drivers save an average of 10 (percent) to 15 percent,” said Brittany Senary, spokeswoman with the company. The average annual savings is $150.

Although the device records the vehicle’s speed, Hutchinson said speed is not a variable when calculating the potential discount. He said also Snapshots do not have GPS, and the data transmitted will not be used to increase a customer’s rate.

“It is a discount-only program,” he said. “Best case, you get up to 30 percent off your insurance rate. Worst case is 0 percent.”

From a business standpoint, the Snapshot program makes financial sense because it will attract customers who want more power over their insurance rates, Hutchinson said.

It certainly appealed to Brandon, who said she signed up for because she obeys the rules of the road and drives cautiously and defensively.

The Snapshot program is not the only discount program of its kind.

Allstate offers Drive Wise, which also rewards safe and low-mileage drivers who agree to attaching wireless telematics devices to their vehicle’s computers for measurement purposes.

A company spokesman said the program is currently only available in Illinois, but the plan is to expand into other states later this year. State Farm, the state’s largest auto insurer, has the Drive Safe and Save program, which tracks driving habits using customers’ OnStar, a subscription-based safety and communication system.

Jeff Rieder, president of the Ward Group, which is a management, consulting and research firm located in Cincinnati, said the usage-based insurance model appeals to insurance companies because although it reduces their revenue, they believe it will attract safer drivers, which will save them money in fewer claims.

“For an average insurance company, they will have about 24 (percent) to 25 percent of their policies make a claim in a given year,” he said.

“If they get customers as a whole who are a better risk, and they can reduce that 25 percent down to 22 or 21 percent, that ends up being a huge savings for them.”

Rieder, however, predicts that if discount programs grow in popularity, some insurance companies could end up charging people who do not participate in the discount programs higher rates on the assumption they are worse drivers.

“For some companies, if they don’t make the correlating adjustments for bad drivers to charge them the appropriate rates, it could disproportionately lower the revenue for the insurance company,” he said. “There has to be correlation for insurance companies to charge the worst drivers more.”

By signing up for a pay-as-you-drive policy offered by State Farm instead of an estimated miles policy, you could see your future premiums fall. The less you drive below a threshold of 19,000 miles a year, the more you save.

Premiums are tied in part to the actual number of miles driven, as opposed to estimated annual miles listed on a policy. Any savings from driving less are applied to the next six-month premium period.

State Farm is the first auto insurer to offer pay-as-you-drive policies in the Bay Area. Auto Club of Southern California, which also began offering the policies earlier this year, does not do business in the Bay Area. While other major insurers, including AAA Northern California and Allstate Insurance, are not planning to offer them at this time in California, the industry will be watching to see if the concept catches on with consumers.

In its pay-as-you-drive program, which State Farm calls Drive Safe & Save, motorists can self-report their mileage online or at an agent’s office before renewing a policy. Drivers with General Motors, Saab and Saturn vehicles equipped with OnStar technology and who have an active diagnostics account can have the mileage automatically sent to State Farm. Customers who meet the OnStar criteria also can choose to self-report their mileage.

Bell is going for the self-reporting option, since her older-model Saturn is not equipped with OnStar. She has already made some changes to her driving habits.

“It does make me think to try and combine trips and avoid them whenever possible. I was sorting through some old papers and was taking them to be shredded, so I combined that with several trips. I was trying to minimize the amount of miles,” said Bell, who paid $338 for a six-month auto insurance policy from State Farm.

The mileage verification method — self-reporting or automatic device — is left up to the driver, who also can receive a small discount for signing up for a pay-as-you-drive policy. If a motorist chooses to self-report odometer readings, insurers can use a third-party vendor such as Carfax — which collects data from automotive repair shops — to verify accuracy.

California motorists always have been able to ask for a discount on future premiums for driving less than their estimated mileage. They still can, regardless of whether their insurer has rolled out a pay-as-you drive offering.

The pay-as-you-drive movement can be traced to Proposition 103, the landmark auto insurance reform initiative passed by voters in 1988. It required insurers to base premiums primarily on a driver’s safety record, number of miles driven annually and years of driving experience.

New regulations approved by former Insurance Commissioner Steve Poizner allow for actual mileage to be a voluntary alternative to estimated mileage. The regulations also make it possible for insurers to automatically collect mileage verification from an automatic device inside a vehicle.

Any savings from actual miles driven will show up in future premiums.

As an example, under State Farm’s Drive Safe & Save program, a 36-year-old single male driver with a Concord ZIP code of 94520 whose verified mileage was 12,000 miles in 2011 would pay an estimated yearly premium in 2012 of $684 on a 2007 Honda Accord. That amounts to an 8 percent savings off the $744 premium that same driver would pay if he was not enrolled in the program. If that same Concord driver were to put on only 8,000 miles, the estimated 2012 premium would be $640, or a 14 percent savings.

Before it launched its Drive Safe & Save program, State Farm drivers had two types of estimated annual mileage policies: premiums tied to less than 7,500 miles (short annual) and more than 7,500 miles (long annual).

The new program essentially provides future premium savings for every block of 500 miles that a motorist ends up driving below the threshold of 19,000 miles a year.

“Now you’ve got 39 different mileage segments where you can fall under and potentially have savings in each of those segments if you are moving down in mileage,” State Farm spokesman Bob Devereux said.

State Farm expects that 25 percent of its more than 3.4 million auto insurance policyholders in California will sign up for the program.

The program is not for everyone, given that the potential savings can only kick in if a motorist drives less than 19,000 miles a year.

“If you are driving more than 19,000 miles a year, there would be no opportunity for the savings that come with the Drive Safe & Save program,” Devereux said.

Pay-as-you-drive policies can benefit consumers, as long as they provide significant savings for driving less, said Doug Heller, executive director of Consumer Watchdog.

“What it does is tether your insurance premiums more closely to actual miles that you drive every year. By making some changes and alterations in your driving habits, you can actually save money,” he said. “If you’re driving less, you’re less of a risk to your insurance company so you should be able to pay them less.”

State Farm’s program does accomplish that goal, whereas the Auto Club of Southern California’s program does not provide significant savings, he said.

“State Farm’s program actually fits with the goals of this pay-as-you-drive idea,” Heller said.

POTENTIAL DRIVE SAFE & SAVE SAVINGS
Scenario: 36-year-old single male, Concord ZIP code of 94520, good driving record, drives a 2007 Honda Accord, 12,000 estimated annual miles. He would pay $744 a year for a full-coverage policy in 2011 offered by State Farm. Estimated potential savings that would appear for the 2012 premium if the same driver was enrolled in the Drive Safe & Save program: If he drove 8,000 miles, he would pay $640. if he drove 12,000 miles, he would pay $684 per year.

With pay-as-you-drive car insurance, drivers only pay for the insurance coverage that they actually use. Those who drive less, pay less for insurance.

Consumer groups and some economists have demanded this type of coverage for years, and their lobbying has paid off. Last month, Progressive Insurance began advertising its Snap Shot Discount pay-as-you-go product nation wide. Its available in 32 states. State Farm and Allstate also offer similar deals.

Texas spearheaded the movement: It was the first state to allow such coverage back in 2001 with MileMeter, while California — a state that often begins auto trends — only began permitting it in December.

Big Discounts for More Data

The industry argues that these policies can save consumers a bundle. Progressive estimates potential savings of $150 a year, for example. Pay-as-you-go insurance can be an excellent choice for people who drive very few miles during the week.

Experts caution that pay-per-mile policies aren’t right for everyone. For one thing, to determine eligibility, insurers typically install a device that tracks customers’ driving habits for around six months. Some drivers may not see this as an invasion of privacy, which is why it’s currently optional.

Some of the programs also have strict rules about when customers can drive and may disqualify customers from getting the discount if the tracking device shows that they often drive late at night.

An Invasion of Privacy?

Progressive’s program has drawn the ire of consumer groups because it requires drivers to install a “Snapshot” device, which monitors how far — and when — people drive. The device, about the size of a garage-door opener, collects data for 30 days before the company decides if a driver is eligible for the pay-as-you-go discount.

Carmen Balber of Consumer Watchdog argues that drivers should not have to give up their rights to privacy to get a good rate on car insurance. She also argued that drivers who are on the road late because they work the late shift are unfairly penalized by these programs.

Progressive, the fourth-largest auto insurer, began working on the concept of usage-based insurance in
1998 and made it broadly available in 2008. It rejects the notion that consumers are getting a bad deal, saying that about a quarter million drivers have signed up.

“Snapshot is best for people who drive less, in safer ways and during safer times of day,” Brittany Senary, a Progressive spokeswoman, writes in an an email. “Those are the drivers who are most likely to get a discount.” Drivers’ rates are guaranteed not to increase as a result of Snapshot, she says, adding that the discount isn’t based on location or speed. “The device does not have GPS, so we don’t know where the car is,” she writes.

More Per-Mile Programs

Like Progressive, Allstate also requires drivers to install a vehicle-monitoring device about the size of a pack of cigarettes to quality for its per-mile policy. Customers get a 10% discount for enrolling in the Drive Wise program, which launched in Illinois in December and could expand to other states this year, and could be eligible for additional discounts, depending on their driving habits. “Is a rewards-based program,” spokeswoman Stephanie Sheppard says in an interview. “There are no penalties.”

State Farm’s Drive Safe and Save program gives customers a 5% discount for enrolling, as well as the possibility of additional discounts depending on the miles they drive. The program is currently offered only in California and Ohio, although the company plans to expand it to Illinois and Texas. In California, drivers can simply report their mileage, but in other states, State Farm only enrolls drivers whose vehicles are equipped with On Star, which can track vehicles’ miles. As with Progressive, the savings from this plan can be considerable, but also can vary widely.

Saving the Environment

Not only does usage-based auto insurance save consumers money, it’s also good for the environment, according to a 2008 report from the Brookings Institution,

“Just as an all-you-can-eat restaurant encourages more eating, current insurance pricing encourages more driving,” the report says. “The extra driving that results from this inefficient system leads to more accidents, more congestion, more carbon emissions, more local pollution, and more dependence on oil. This pricing system is also inequitable because low-mileage drivers subsidize insurance costs for high-mileage drivers, and low-income people drive fewer miles on average.”

The new auto insurance coverage to be implemented in Texas will be charging the overall auto insurance based on the total miles driven. This will give the implication of greater savings for those individuals who just drive a few miles. The program will be called Drive Safe and Save Program.

To be eligible for the program, the consumers need to have an active OnStar Account with Onstar vehicle diagnostics. This is necessary in order to monitor and assess the total mileage being driven by an individual. There is an expected positive feedback from the customers as the State Farm’s Vice President, Mike Hargis confirmed. They are currently the largest auto insurance company in Texas and attractive offerings like this are expected to not only benefit consumers but their company as well.

Auto insurance discounts will be based on the odometer readings and this will be done after a 100-day evaluation of the total mileage of the car. The annual mileage will be the primary basis that will determine the auto insurance discount that can range from 1 to 30 percent.

There will also be a new computation of discount every time the auto insurance is being renewed. As such, conscious efforts from the drivers are needed to adjust their auto insurance premiums accordingly.

Yesterday, Progressive, an auto insurance company, gave details about their new program called the Snapshot Discount. The Snapshot Discount is under the Pay-As-You-Drive program which gives the clients an opportunity to cut down more on the rates of their car insurance. Progressive declares that they are the very first auto-insurance company to introduce this concept to the market.

The Snapshot Discount device is placed in the On Board Diagnostic port which is found somewhere on the steering wheel. It works by analyzing the client’s driving routines for a period of six months and then it calculates the total discount earned by the client. This auto insurance device also secures the confidentiality of the client as it does not record the whereabouts of the car and how fast the client drives the car; this device is not equipped with GPS system.

After a month with the Snapshot Discount device, the client may see how much they have earned by logging in to their policy. This is very helpful for it allows the client to modify their driving routines to be able to earn more discounts. Given the efficient use of the Snapshot Discount device, the company proclaims that a client can secure a maximum of 30 % of their policy.

“We believe Snapshot is a game changer-representing the future of auto insurance as our mobile and interconnected world gives us the opportunity to offer immediate and substantial savings to our customers,” the President and CEO of Progressive Glenn Renwick discloses. The Snapshot Discount device is as of now only available in 32 states, but Progressive tells that more states would be reached within the year.

Pay-As-You-Drive auto insurance programs are gaining fans because they can provide drivers big discounts, over 20%. Usage based insurance depend on type of vehicle used, and measures against a driver’s time, distance and place. Pay as you drive (PAYD) means that the insurance premium is calculated dynamically, typically according to the amount you drive.

Types of coverage for usage based auto insurance:

1. Coverage is based on the odometer reading.
2. Coverage is based on the number of minutes the vehicle is being driven and transmitted by cell or RF signal.
3. Coverage is based on hard braking, speed and time-of-day driven.

With car monitoring based insurance driving data is automatically transmitted to the insurer. Driver behavior dictates the cost of insurance dynamically, as their driving changes. Drivers have a bigger incentive to drive safe. If a driver commutes to work less often, that would reduce the risk of rush-hour accidents. With computer monitoring, that reduction would effect their insurance rates right away.

How Much Can Insureds Save?

Pay-as-you-drive car insurance is for drivers who log less than 15,000 miles a year. The less you drive, the less you pay, which can provider discount, from 8% to 54%, says Tim Hogan, GMAC’s vice president of national accounts. Mileage information is collected by a telematics-based vehicle tracking system, and your discount grows for every 2,500 miles fewer you drive. For example, someone who drives between 10,001 and 12,500 miles might save 18%, while someone who drives under 10,000 miles a year could save 25% off standard rates.

Companies offering Pay As You Drive Car Insurance

MileMeter was the first is car insurance company offering pay-by-the-mile auto insurance. They currently only provide insurance in the state of Texas.

Progressive has a pay-as-you-drive program called Snapshot. Snapshot provides discounts of up to 30% per year from its regular car insurance rates. Snapshot is currently available through 25 states. Because each state has separate insurance regulations, the Snapshot is slowly getting approval in each state. Snapshot provides discounts on auto insurance based on mileage, times of day the car is used and hard braking. Driving late at night 12am to 4am a notorious time for accidents and sudden acceleration and stops are warning signals.

Snapshot works only for cars made after 1995 because the device needs an onboard computer and diagnostic port. The device monitors mileage, time of day when the car is driven and driving style. There is no GPS tracking exact location, which has some privacy issues.

GMAC Insurance, in collaboration with OnStar, offers a discount in 35 states for those who have a GM vehicle equipped with OnStar and drive fewer than 15,000 miles per year. By the end of 2011, GMAC’s goal is offer the monitoring (with associated discounts) in most states.

Disadvantages of Pay As You Drive Car Insurance

- Prepaid insurance charges for future driving rather than past risk, so it’s imprecise.
- Distance based driving may not differentiate highway, city, or country road driving.
- A tracking system may charge less to a slower driver who changes lanes abruptly, or drives in an inattentive or careless manner.
- Some systems may use location tracking, which could unacceptable infringe on driver’s privacy.