North Carolina Considers Pay-As-You-Go Insurance
09 May 2011
General Assembly bill would allow companies to offer customers special discounts based on how much they drive.
By Ely Portillo
elyportillo@charlotteobserver.com
As gas prices climb, some people are cutting back on their driving.
In other states, those drivers could benefit: Insurers offer policies where motorists can pay less by driving less. But insurance companies don't sell such policies in North Carolina.
That could change under a bill being considered in the General Assembly.
"What the existing law does is prevent any kind of special discounting," said state Sen. Bob Rucho, a Matthews Republican, who is one of the bill's sponsors. "It gives insurance companies an opportunity to come in and offer some special discounts that they wouldn't be able to otherwise."
There's some evidence that Americans are driving less as gas inches inexorably higher. MasterCard SpendingPulse, a survey that tracks most retail purchases, has reported declining gas sales for the last six weeks. The price of crude oil fell back below $100 a barrel last week, which traders said was driven partly by declining demand.
Pay-as-you-drive insurance works like any other usage-based service. Instead of paying a flat rate - like you do for, say, your cable bill - drivers pay a variable rate based on how much they drive - more like your electricity bill.
State Farm, which underwrites more than a million auto insurance policies in North Carolina and is backing the Senate bill, offers a version of pay-as-you-drive insurance in other states.
"I do think that potentially, the benefits of any discounts are great for our customers," said spokeswoman Kim Conyers. "Unfortunately...many of them cannot be offered in this state."
In California, for example, drivers with State Farm can save 2 percent for driving 16,500 miles a year, 5 percent for driving 14,000 miles, 11 percent for driving 10,000 miles, down to 45 percent if they limit driving to 500 miles a year. Mileage is tracked via OnStar or odometer readings.
State Farm does warn drivers on its website that its premiums could rise if they are currently receiving a low annual mileage discount and their actual mileage, tracked by the pay-as-you-drive discount, exceeds that level.
Available in other states
Progressive currently offers its "Snapshot" discount in 34 states. The program requires drivers to attach a device to their cars that records information, including speed, braking habits and time of day, to determine discounts, with more going to perceived safer drivers. The company says the program, which is not available in North Carolina, can save drivers up to 30 percent.
Although some drivers might not want to share details of how they drive with their insurance company - even for a discount - the devices are voluntary. Progressive also cautions that drivers in four states could see rates increase up to 9 percent based on their driving habits.
Opposition to the bill
The N.C. Department of Insurance opposes bills to change the insurance system, arguing such efforts would actually result in higher premiums. The reason why has to do with the way insurance is regulated in the state, which the Senate legislation also would fundamentally change.
Currently, the system works like this: Each year, the N.C. Rate Bureau, a state agency representing insurers, requests a rate increase from the N.C. Department of Insurance. The insurance commissioner can either approve the change, order a lower rate increase or even order insurers to cut rates.
Insurers also can shift liability coverage for drivers seen as high risk into a reinsurance pool, which allows those drivers to have rates subsidized by a statewide surcharge on all policies.
Rucho's bill would limit the insurance commissioner's ability to challenge rate increases unless they total more than 15 percent in a year and phase out the reinsurance pool surcharge, which currently adds about 4.8 percent to auto liability premiums.
Insurance Commissioner Wayne Goodwin, a Democrat, has said that taking his department out of the equation would inevitably lead to steeper rate hikes each year for consumers. He said last month that "corporate greed" was behind the proposal.
Backers of the bill
Insurance companies and the bill's backers say that competition and new discount programs would keep their rates low.
The conservative John Locke Foundation in April published a report calling for reforms to abolish much of the state's regulatory framework for auto insurance.
"Innovations currently unavailable in the state - pay-by-mile auto insurance among them - might well become available in such a setting," the report said.
Whatever the ultimate effect on rates will be, drivers aren't likely to see pay-as-you-drive insurance here anytime soon. The bill, along with two other similar proposals to overhaul the system, are being sent to a study commission.
"We need to study this," Rucho said. "I would hope that we'll get a chance to look at it very thoroughly in between (legislative) sessions. We can find a way to make it better."
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