A New Type Of Car Insurance

[nlarson32767]

Will customers be willing to buy car insurance by the mile?

The prevailing system for personal car insurance involves charging all drivers in a risk pool a similar price for six months of insurance. This includes those who commute by mass transit every day and save the car for emergencies. These occasional drivers are bearing the cost of the high-mileage customers in the risk pool.

Could a cents-per-mile system catch on? I contacted Cents Per Mile Now to find out. It turns out a variable-rate system, verified by odometer readings, is already widely used for commercial fleets. But except for a few token pilot programs, the major insurers have been reluctant to use the same system for personal car insurance.

The system works like this: Each customer reports their own odometer reading and purchases coverage for a certain number of miles. The beginning and ending odometer readings are then printed on their insurance card. In the event of a traffic stop, an officer can then easily verify whether or not their coverage is current.

The idea is that those who drive rarely will pay a fixed cost to cover the risk of theft, hail, etc. while paying only a modest rate for collision and other mileage-related risks. I would be interested in getting involved if anyone would like to start a cents-per-mile company in the Washington metro area.

Here is a partial email from Cents Per Mile Now:


Dear Mr. Larson,

I'm sorry to tell you that although consumer demand is building, no company (national or regional) is yet offering cents per mile insurance. We think that new startup auto insurers will be the first and the nationals then will be forced to compete or lose all of their "cream" -- customers with cars like yours mainly left at home.

It's the car insurance of the future and must come because the pay-per-car system is so dysfunctional for so many car owners. You can help accelerate the process by talking up the per-mile system, talking to Virginia state legislators, and by publicizing the centspermilenow website.

. . .

Patrick Butler, Ph.D.
Insurance Project Director
National Organization for Women
1100 H Street, NW, 3rd Fl.
Washington, DC 20005
202-628-8669 x 148
Cell: 512-695-5136 (best number)
email: pbutler@centspermilenow.org
http://www.centspermilenow.org

[koreilly]

<!--QuoteBegin-nlarson32767+Aug 28 2004, 10:53 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (nlarson32767 @ Aug 28 2004, 10:53 PM)</td></tr><tr><td id='QUOTE'><!--QuoteEBegin-->Will customers be willing to buy car insurance by the mile?[/quote]
While it's not quite cents-per-mile, Progressive is piloting a program in Minnesota offering drivers up to 25 percent off their premium for installing a device that tracks when, how far and how fast they drive.

Here's the IJ story:
<a href='http://www.insurancejournal.com/news/mi ... /45339.htm' target='_blank'>Progressive Rolls Out Data-Logging Discount for 5,000 Minn. Drivers</a>

[hoodbran]

What if your cents-per-mile is parked on a hill and one night the brake releases and rolls down the hill into a group of people, killing 2... there was no driver, not quite a mile, now you have a liability suit... hmmm don't think it would work, insurance is concepted the way it is because it works. Only, in order to keep the consumer happy, it requires that insurers offer discounts in premium for the good and added as surcharges to the bad drivers...

[Josh]

You can buy Coke by the bottle or by the case. For the former you'll pay a premium. Simple economics.

Higher administration and sales costs probably break the pay-per-mile model. (many factors aside from simple usage affect the risk).

Of course, everyone thought <a href='http://www.virginmobileusa.com/' target='_blank'>Virgin Mobile</a> was crazy when they started selling prepaid mobile phone minutes at outrageous rates.

[ISOWriter]

-Deleted Post-

[wlunday]

There are way too many variables to make this work. Most preferred carriers already have discounts for low usage... long commutes and business use rates cost more than a "pleasure" rating, so in a sense this is a price per mile rate.

We all know cases where it might make sense, but think about it... who should pay more, the Montana Cattle Rancher that drives five miles a day on a icy mountain pass road at 3AM, or the bookkeeper that drives 20 miles daily between home and office in surburbia.

Also I'd hate to have to re-rate policies everytime a client got billed extra after an audit for overuse "miles". UGH!

Swymmer

[Porter]

From an agents point of view the current system is better. I like knowing ahead of time when policies are renewing. It helps me budget for the agency and set reviews for insureds. Also, I don't think this will help insurance companies get accurate mileage. If a client is going to lie about their mileage with the current system they will unplug their odometer with the pay per mile system.

[pbutler]

In response to the concerns expressed January 11, 2007, the cents-per-mile proposal invovles only a change in exposure unit -- the premium basis and accounting unit -- from car year to odometer mile.
No change in classification is required, except that some class factors which purport to proxy for annual miles would be rendered redundant.
In regard to fraud, classification fraud is currently rampant in regard to estimated future miles discounts and other unverifiable discount classes.
That's classification fraud. In regard to exposure unit fraud (as in bogus payrolls in workers comp), odometer mile fraud, like utility meter fraud, is currently controlled and subject to civil and criminal prosecution. Since a car would become uninsured if the odometer limit to pre-paid miles were exceeded, to get 20,000 miles of coverage by paying for 2,000 miles would require 9 roll-backs (electronically now) to stay within the coverage window, say 40,000 miles to 42,000 miles on the odometer.
More on these and other issues is available at http://www.centspermilenow.org.
The comments and issues raised are appreciated. Thank you.