May 22 (Bloomberg) -- State Farm Mutual Automobile Insurance Co., the largest U.S. car insurer, is the first to apply to the California regulator to offer pay-as-you-drive coverage in which motorists get discounts for traveling less. The application is under review, California Insurance Commissioner Steve Poizner said yesterday in a statement.
Insurers say that pay-as-you drive coverage, in which companies track miles traveled and other data about driving habits, allows them to better price policies and may encourage customers to make fewer trips, reducing gasoline use. Poizner approved the concept in October. He said the coverage won’t violate customer privacy.
“It’s just common sense that Californians who choose to drive less should have an option to pay less,” Poizner said in the statement. “I hope other insurers follow suit.” Poizner, a Republican, is running for California governor.
Pending approval, pay-as-you-drive coverage in California may be offered in September, said Bob Devereux, a State Farm spokesman. State Farm has more than 3.3 million auto policies in the state, he said.
“It’s a program from an insurance point of view that helps us better match price to risk, and that’s a good thing for everybody,” Devereux said.
Most policyholders initially save about 5 percent on their major coverage for participating in the program, which is known as “Drive Safe & Save,” State Farm said on its website. After the insurer has at least 100 days of odometer readings, savings may range from 1 percent to 45 percent.
Progressive
Progressive Corp., the fourth-largest U.S. auto insurer, offers “MyRate” pay-as-you-drive coverage, which calculates miles driven through a device issued by the company, according to the insurer’s website. The company offers MyRate in 19 states and is in talks with California, said Richard Hutchinson, a Progressive general manager.
If pay-as-you-drive coverage was adopted by all motorists nationwide, it could reduce driving by 8 percent, according to a report from the Brookings Institute. That could reduce carbon dioxide emissions by 126 million tons, or 2 percent of all emissions nationally in 2006, according to the report.
The program may encourage drivers to “pursue public transportation or other modes of transport,” said Molly DeFrank, a spokeswoman for Poizner.
