Many automobile insurance companies may soon start offering “pay as you drive” policies. These policies charge the drivers depending on the number of miles they have driven. Authorities in California have announced the approval of final regulations, which means insurance companies can start selling the product, if they so decide. The move may result in better profits for insurance companies since automobile insurance claims percentage may go down compared to total business generated.
Pay as you drive rewards the motorists in a creative way. They get financial rewards if they spend less time driving on the road. The end result is positive for everyone involved because auto insurance cost is reduced along with less dependence on foreign petroleum products and reduced air pollution.
According to current California law, insurance companies are advised to determine premiums based on drivers’ estimates of how much they travel in a year. The insurance companies counter it saying drivers own estimates happen to be inaccurate most of the time and that they travel more than their own estimates. According to the law, insurance companies can offer discounts to those drivers who agree to get their number of miles driven verified. These verifications measures may include maintenance records on a vehicle, installation of an electronic monitoring device and odometer readings. These devices should, however, not be used to find out the location of the drivers or their vehicles.
Just like prepaid cellular phone plans, auto insurers would also be allowed to sell prepaid insurance for a fixed number of miles. The proposal is based on a simple idea, if a driver spends less time on the road driving, the insurance risk on him faced by the insurance company is also less, and that’s the reason they are encourage to collect lower insurance premiums from such drivers. The heavy drivers, on the other hand, will have to pay the penalty for driving more. The authorities believe, the positive effects of such a law may dramatically decrease miles driven by heavy drivers.
