TDI Considers Regulations for Insurance-by-the-Mile

The Texas Legislature authorized insurance-by-the-mile-based auto insurance coverage during this year’s session with the passage of House Bill (HB) 45 and the Texas Department of Insurance (TDI) is now hard at work trying to figure out how such a system would operate.

Under an insurance-by-the-mile scheme, a driver would purchase coverage for a certain number of miles rather than for a certain period of time, such as one year, which is the current method of establishing premium rates in the state. Under the mile-based plan, an insured purchasing coverage for 10,000 miles would have a higher premium than a driver purchasing coverage for half that number of miles; however, when either vehicle were to reach the number of miles purchased, the coverage would lapse.

Although the bill was to have become effective Sept. 1, TDI has until Dec. 31 to adopt the rules necessary to implement time-based and mile-based rating plans. In addition, mile-based plans will only apply to auto policies delivered, issued or renewed after Jan. 1, 2001. A TDI spokesman said that so far, no insurance companies have committed to mile-based plans and that only Progressive Insurance Company testified in favor of the bill in legislative hearings.

Whether or not an insurance company offers mile-based coverage is optional under the bill, and the new law authorizes insurers to require consumers purchasing coverage to use the same rating plan for all vehicles covered under the insured’s auto policy.

An insurer offering a mile-based rating plan must file annually with TDI for rate approval, but a company’s rates for a mile-based plan would be exempt from the benchmark and flex-rating process. Companies using mile-based rates must report their loss and premium experience separately from their experience with time-based plans.

A number of issues confront TDI as the agency struggles to write the rules under which companies may sell these policies, including pricing and how to keep track of an insured vehicle’s mileage. Other concerns include how to protect a consumer forced to take an emergency trip that may exceed the mileage purchased from running out of coverage during the trip and how to handle proof of insurance verification during a traffic stop.

Suggested solutions for verifying mileage range from odometer checks by insurance company representatives to installing in the car computer chips that may be monitored by satellites or other tracking devices. According to the Dallas Morning News, the cost of monitoring vehicles with this type of coverage remains a sticking point with insurance companies.

Consumer groups, like the National Organization for Women, (NOW), which testified in favor of the bill during the legislative session, and the Consumers Union, support the idea of pricing insurance according to the number of miles driven. Advocates say a per-mile pricing option could benefit older drivers, lower-income groups, those who use public transportation, families with multiple cars, and others who tend to put fewer miles on their vehicles.

Topics Carriers Auto Legislation