Last month, the California Department of Insurance finalized and released new regulations permitting California insurance companies to offer their customers the option of verifying the miles they drive.  This has been called “Pay As You Drive Insurance,” even though there is nothing in the regulations that more directly ties how much you drive to the premiums you pay.  We were disappointed.  As I’ve written previously, it’s not just verifying your miles that will get you the savings and help the planet. To quote from a recent Op-Ed I co-authored in the San Jose Mercury News:

Verifying your miles is key to any Pay As You Drive program, but it's not enough to make an insurance policy benefit the environment — or your wallet.

On top of verifying how far you drive, your insurer needs to price mileage clearly to give you more power to control your insurance premium. Imagine how you could save if you knew the cost of your insurance by the mile.

We also had concerns about requiring drivers to install devices in their cars to track mileage.

Our biggest criticism, though, was the entirely voluntary nature of the regulations: it is the insurers’ choice alone whether to go this route or not, and we’re not sure that’s the best approach to environmental policy in California.  As we told the Department of Insurance, we are unaware of any instance anywhere in the country where merely permitting PAYD has resulted in the significant availability of PAYD policies.  Apparently, the Department of Insurance didn't even perform any market analysis to determine the likelihood of companies’ offering these policies.  While intending to not force consumers into PAYD, the Department’s regulations do little, if anything, to actually provide consumers the choice of PAYD.

An editorial in yesterday’s San Mateo Times, however, sees it differently.  Clearly supportive of PAYD as both an environmental and consumer benefit, the Times supported an entirely voluntary approach, opining “[Insurance Commissioner] Poizner did not mandate any insurance policy terms…he believes that the best way to motivate change is through competition and innovation. We agree” 

Now, few disagree that competition can lead to innovation, but even fewer would then conclude that public officials therefore have no role in steering companies in the right direction, as the Times concludes.   Examples abound of regulation leading to innovation, particularly here in California.  How does the Times think California's per capita energy consumption has basically stayed flat over the past four decades, while the country’s as a whole has soared?   

Reasons for Optimism?

There would be more to be optimistic about if we had clear indications from the insurance industry that PAYD is something they’re exploring.  Unfortunately, the response seems to be lukewarm.  In covering the new regulations, the Insurance Journal itself reported “it is not exactly clear how many companies are going to be interested in offering pay-as-you-drive policies.”   When asked, Mercury Insurance, for one, had “no concrete plans to offer a pay-as-you-drive policy at present,” despite the fact that the regulations have been under discussion for nearly two years. 

And we also know that many California insurers are already missing existing opportunities to reward customers who drive less with lower premiums.  Earlier this year, NRDC joined Consumer Watchdog in releasing a report card grading California’s top 10 insurers on how many opportunities they gave their customers to save.  The best grade?  C. 

This is how well we’re doing leaving it to insurers.

It’s not regulations, per se: it’s bad regulations we should be concerned about.  PAYD regulations that would require insurance companies to offer a real, environmentally-friendly product to their customers would preserve consumer choice while meeting our commitment to fighting global warming.   That’s why we called for a requirement that California insurers at least offer a PAYD product to their customers.  The choice, then, is up to consumers, not insurance companies.

According to a recent report on KTVU in San Francisco, Commissioner Poizner has seen a lot of interest in PAYD among insurance companies and expects them to begin submitting plans to him “by the end of the year.”    Like the San Mateo Times, we’ll wait and see how well the insurance companies treat consumers, and the environment.