Melissa Gannon
Driving less reduces air pollution, toxic runoff from roads, and climate impacts. Additionally, PAYD is expected to reduce accidents; a 10% reduction in driving is estimated to result in a 17% decrease in crashes."
Oregon, Minnesota, Texas, Washington, and California are all in various stages of promoting the implementation of PAYD insurance as an option for consumers. GMAC Insurance, a subsidiary of General Motors(GM Quote - Cramer on GM - Stock Picks), has a mileage discount program for drivers with GM vehicles and its OnStar system. Drivers earn a discount for the miles they drive. Progressive Direct Insurance Company, a unit of Progressive(PGR Quote - Cramer on PGR - Stock Picks), began a pilot program in Minnesota in 2004 offering 5,000 policyholders an incentive to install a device that collects information on their driving habits. The results and feedback from this will be used to determine if the program should be offered on a wider basis and to potentially advance the PAYD initiative. Progressive worked with the North Central Texas Council of Governments to conduct a similar pilot program with more than 200,000 drivers. The final report analyzing the results of the program, which began in August 2005, is expected out soon. Progressive also initiated pilot programs in Michigan and Oregon. This new pricing concept seems perfectly logical in theory, but pitfalls can become apparent in the implementation. Three common payment structures are: have policyholders prepay for estimated miles at the beginning of the year and then settle up the difference at the end of the year; ask policyholders to pay their regular premium, then get a rebate at the end of the year if mileage is below a certain limit; or insurers bill policyholders monthly for actual mileage.
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