California Auto Insurance Blog

Representatives from California’s Department of Insurance and notebook computer maker ASUS Computer International have been visiting community colleges to introduce students to the state’s California Low Cost Automobile Insurance Program (CLCA).

In today’s economy, all Californians – especially students – are looking to save money. The CLCA program provides affordable liability-only auto insurance that meets the state’s financial responsibility laws for less than $400 a year.

“The CLCA is a great resource for many Californians, but it can be especially helpful for college students,” said Deputy Commissioner Chris Shultz. “For as little as $26 a month, students can get liability insurance through the CLCA program – satisfying California’s insurance requirements.”

The CDI said it recognizes that many students shop for bargains online, which is why it and ASUS representatives recently visited American River College in Sacramento to introduce the CLCA program and demonstrate the ease of applying to the program online.

The American River College visit was the second in the Insurance Department’s series of College events, with a third to follow next month at a community college in San Diego.

The eligibility requirements for the CLCA program include:

* An applicant must be a “good driver” – no more than one at-fault, property damage-only accident or one point for a moving violation in the past three years;

* No at-fault accident involving bodily injury or death in the past three years and no felony or misdemeanor conviction for a violation of the Vehicle Code;

* Family meets income eligibility limits of $27,225 for a single person, $36,775 for two persons and $55, 875 for a family of four;

* The value of an insured vehicle must not exceed $20,000.

“Every day, more than a million uninsured drivers hit the roads in California,” Shultz said. “The bottom line is that driving without insurance is illegal. The California Department of Insurance encourages all Californians to find out if they qualify.”

The California Low Cost Automobile Insurance Program was established in 1999 as a pilot program in Los Angeles and San Francisco. SB 20, passed in 2005, authorized the Commissioner to launch the program throughout the state upon his determination of need in each county. Beginning in April 2006, the department began expanding the program statewide, and in December, 2007 made the program available in every county of the state.

The latest Consumer Price Index (CPI) report, released Friday, shows that the average price of an American motor auto insurance policy rose one-tenth of 1 percent between February and March.

According to the Bureau of Labor Statistics (BLS), the cost of American auto insurance policies rose 4% between March 2010 and March 2011.

In addition, consumers can change protection levels, adjust deductible sizes and look for new discounts in order to cancel out any price increases.

The BLS’s total sample of coverage costs consists of 768 policies spread out over the CPI pricing areas. Major types of coverage incorporated into the sample policies include “collision, comprehensive, bodily injury liability, property damage liability, medical payments, uninsured motorist and personal injury protection.”

The February–March month-to-month change for the price of all items tracked in the CPI far exceeded the increase in coverage prices. The latest month-to-month price change for all items was 1 percent.

The relative importance of coverage costs accounted for about 16 percent of the overall relative importance for total private transportation costs.

In the last 3 years, California has seen a 9% increase in the number of questionable claims according to the National Insurance Crime Bureau (NICB).

Dominated by questionable vehicle thefts and faked/exaggerated injuries, these questionable claims are referred to the NICB by the more than 1,100 member insurance companies and require at least one (and as many as seven) indicators of possible fraud.

“California sees the most, by far, vehicle thefts per year,” said Frank Scafidi, director of public affairs for NICB. “Many of these are what we call ‘owner give-ups;’ thefts reported to police by owners who actually had a role in the vehicle’s disappearance.”

Scafidi added that faked/exaggerated injuries are dominating not only California’s fraud activity, but all of the fraud we see across the country. “A lot of people will seize upon an auto collision as a means to seek illegitimate or excessive payments,” Scafidi said.

The claims in Calif. made up just nearly 50,000 of the 250,350 QCs across the country between 2008 and 2010, though were few in comparison to the 235,000 claims reports that are submitted to ISO daily.

When it came to policy type for California QCs, the most common (54 percent) was personal automobile, with other common policy types being personal property, workers’ compensation and employer’s liability, and commercial automobile.

The most frequently used referral reasons for these QCs were questionable vehicle theft and faked/exaggerated injury followed by fictitious loss, prior loss/damage, and faked damage. Additionally, the most common overall QC loss types were bodily injury, theft, collision, bodily injury relating to automobiles, and vandalism and malicious mischief.

The cities posting the most QCs were Los Angeles, San Francisco, San Diego, Sacramento, and San Jose, comprising nearly 25 percent of QCs from 2008 to 2010. In all three years, Los Angeles far outweighed the other cities with between 1,500 and 2,000 QCs each year. Even in second place San Francisco, between 500 and 650 QCs were reported annually.

Based in Des Plaines, Ill., NICB is a not-for-profit organization dedicated to preventing, detecting, and defeating insurance fraud and vehicle theft through data analytics. In 2010, NICB member companies wrote approximately 80 percent of the nation’s P&C insurance, including 93 percent of the nation’s personal auto insurance.

by Jessica Bosari

Chris Gay has nicknamed his business the “anti-insurance insurance company”. The former software engineer, working with the idea that drivers should only pay for auto insurance based on the miles they actually drive, developed and founded Web-based MileMeter in 2008. Today, MileMeter is posting a profit, expanding and extending its popularity.

How MileMeter Works

MileMeter is tailored to customers who drive 12,000 miles or less each year, appealing to those who drive a little but pay a lot for insurance, like drivers who most often use public transportation, have low-mileage second cars, are older drivers or are in college. It just doesn’t make sense for people who only drive a little to pay for policies geared towards every day drivers. Pay as you go insurance lets you pay a share of premium the fits your level of risk more proportionately, rather than letting the lower-risk drivers supplement premiums for higher-risk drivers. This simple fact is that the more you drive, the more likely you are to have an accident. If you drive less, you should pay less.

Customers who want MileMeter’s pay-as-you-drive coverage supply online information that includes age, location, vehicle model and a snapshot of the auto’s odometer miles with a driver’s license. No driving record or credit history is required. MileMeter offers pre-paid, 6-month policies for 1,000 to 6,000 miles and the value of any unused miles can be rolled over into a policy renewal.

MileMeter Saves Drivers Money

MileMeter claims some of its thousands of customers save between 40% and 70% when switching from traditional car insurance. The non-profit Brookings Institution agrees that drivers can pocket hundreds of dollars per year, since under current standard auto insurance, all drivers grouped in the same driving demographic pay the same premiums no matter how often they really drive.

Brookings also proposes that pay-as-you-drive car insurance like MileMeter’s would serve as an incentive for drivers to make fewer unnecessary trips. It estimates a national driving decline of 8% with $30 billion in extra benefits like fewer traffic jams and accidents along with environmental and energy savings, if pay-by-mile insurance becomes commonplace.

Pay as You Go Works in Europe

Drivers in Europe are already enjoying the fuel efficiency, environmental and monetary savings that pay as you drive insurance offers. As the movement to match a driver’s level of risk more closely with premium costs, we are likely to find unsafe drivers paying the highest share of insurance costs. This should reduce accident rates overall as drivers cut back on trips and spend less time at risk on the roads.

The federal government would not force auto insurers to offer cheaper car insurance for teen drivers by legislative fiat – but would make it possible for those insurers to offer lower rates for this high-risk group by encouraging more states to take a “graduated” approach.

This would have the additional benefit of taking pressure off of parents, who are often seen by their youngsters as “the bad guys” when they must tell their children that they may not drive around with their friends in the car.

What Is the “Graduated” Approach?

Generally, this approach requires that the young person be supervised by a licensed adult for the first six to twelve months; once the teen has successfully passed this phase without incurring violations or causing an accident, s/he is granted a license with limited privileges – which usually means they cannot carry passengers unless an adult is in the car, and are not allowed to drive after midnight except under certain circumstances. If all goes well, the teen driver can obtain an unrestricted license at age seventeen.

Currently, twenty-seven states – Arkansas, California, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New Mexico, North Carolina, Ohio, Rhode Island, South Carolina, South Dakota, Utah and Virginia – have graduated licensing requirements. Similar legislation is under consideration in four other states.

One result is that insurers in those states are more inclined to offer cheap car insurance for young drivers.

The Safe Teen and Novice Uniform Protection Act, or STANDUP, would set federal standards for graduated licensing across all fifty states. According to the provisions of this proposed legislation, states that are willing to institute graduated requirements would get as much as $1 million extra dollars in federal highway funding each year – whereas those that do not would see a reduction in such funding.

In addition to consumer and parent groups, such legislation is supported by the National Highway Traffic Safety Administration (NHTSA) and the Insurance Institute for Highway Safety (IIHS). It is a documented fact that teen drivers have an accident rate 400% higher than that of experienced adults. However, research in states where graduated licensing requirements are in place clearly demonstrates that such laws greatly reduce these figures.

Premiums for nine driver profiles were calculated across four California insurers. All of the profiles were unmarried females of different ages who live in Los Angeles. OAI compared the prices for the same policy when the driver was 16, 17, 18, 19, 25, 35, 45, 55 and 65 years old. The results showed that:

- The average cost of coverage for a 16-year-old was about 184% higher than the average for a 65-year-old.
- Average prices made their first big drop between the ages of 18 and 19, when they went from $4,888 to $3,500 — a 28% decrease.
- Average premiums declined from 16 until the driver was somewhere between 35 and 45 years old, when they began to rise slowly.

To anyone who has had to purchase coverage for a teenager, these results are likely not a surprise. Teens are regularly regarded as a high risk car insurance group because of their higher-than-average accident rates. According to the Centers for Disease Control and Prevention, “Per mile driven, teen drivers ages 16 to 19 are four times more likely than older drivers to crash.”

But then why such a big price-break for 19-year-olds? In the 1980s, California voters approved Proposition 103, which dictated the types of factors insurers in the state could take into account when setting rates. Since its passage, auto insurance providers in the state have been required to give a policyholder’s years of driving experience the third-largest weight out of all eligible factors.

In addition, it instituted a mandatory good-driver discount that ensured motorists who have been driving for three years without any major violations or accidents get a 20 percent discount on rates. Since all of the driver profiles had no accidents, this could at least partially account for the drop, since it is only at the 19-year mark that the driver would have had 3 years behind the wheel and that the discount would kick in.

Note on methodology: Rates were calculated for liability, comprehensive and collision coverage with $500 deductibles for a 2009 Toyota Corolla LE. All driver profiles were unmarried females who live in the 90010 ZIP code, have no accidents or violations on record and drive about 12,000 miles a year.

During the recession, drivers are lowering the limits on their car insurance, according to a new report, thereby saving money, while assuming larger financial risks. The study by analytics firm Quality Planning found that the rate of people opting out of collision and comprehensive insurance rose from 2006-2010, especially in those cars 10 years and older.

Collision insurance coverage pays for damage to vehicles that are caused by an automobile accident. Comprehensive insurance is similar to collision, but covers damage caused to your vehicle by things outside your control such as theft, vandalism, flood, or fire.

The study found an increase from 53 to 63 percent of older vehicles without collision or comprehensive coverage over that period, saving drivers about $229 a year. For new cars, most kept the full coverage, mostly because banks or lien holders required it and they didn’t want more risk on a newer car. During the 2006-2009 time period, the average insurance for new vehicles was $913 and for cars 10-years or older, $528.

For those owners who did purchase collision and other comprehensive policies, there was a large increase in opting for higher deductibles, risking more out-of-pocket cost in the event of a crash.

From 2006-2009 there was a decline of about 9 percent for those that had low collision coverage (below $250). Those who had higher deductibles ($251-500 and $501-$1000) increased between 1.6 and 4.9 percent each year. New car owners tend to choose lower deductibles to protect their investment.

When times are tough, it is natural to seek ways to save money, but it is important to make sure you continue to have adequate protection. Savings can often be found with comparable coverage by simply shopping around. A Consumer Reports survey last fall found that more than 60 percent of respondents had been with the same carrier for 10 or more years. Being with the same company, accident free, can lead to discounts. Make sure you’re getting them and that the rates are competitive.

DUI affects your car insurance coverage with increased premiums of at least a hundred dollars. Severe cases may even have this up to a thousand. This increase is dependent on both the coverage provider and also the driver’s age.

An auto insurance comparison was based from three different auto insurance providers from California and also three different driver ages. In order to evaluate the effect of DUI, they also computed for the total auto insurance coverage both with and without DUI.

DUI indicates that there is a higher risk associated with the auto insurance making the auto insurance price much higher. The total auto insurance price is being determined by a lot of factors but risks associated with the vehicle are great considerations on the amount that needs to be charged on it.

An increase of 27% to 57% is expected to the total auto insurance coverage having a DUI alone even without physical injuries recorded. The background of the company when it comes to customer profiling, whether it will be a moderate-risk or high-risk drivers, will also play a part on the final auto insurance rates to be charged to these consumers.

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.”