Low-mileage drivers are finding new opportunities to save big on car insurance rates.
A handful of car insurance companies now offer pay-as-you-drive car insurance that charges motorists based on how much they drive and other factors.
For drivers, basing rates on the mileage driven "empowers them over their auto insurance rates," says Richard Hutchinson, general manager of usage-based insurance for Progressive, based in Mayfield Village, Ohio.
Pay-as-you-drive insurance can be a boon for those who drive fewer than 15,000 miles a year. Examples of drivers who could benefit include:
Pay-as-you-go insurance can give such drivers discounts that run well into the double-digit percentages.
Progressive's pay-as-you-drive program is called Snapshot. It provides discounts of up to 30 percent per year off its regular car insurance rates. Snapshot is currently available in 25 states. Because each state sets its own insurance regulations, the program needs approval on a state-by-state basis.
Snapshot provides discounts on auto insurance based on how much you drive, when you drive and how you drive. Driving between midnight and 4 a.m. - the peak time for accidents - and making sudden starts and stops can impact rates.
Snapshot only works for cars built in 1996 or later because a monitoring device must be plugged into the onboard diagnostic port of a vehicle. The device monitors mileage, time of day when the car is driven and driving style. There is no GPS, so it doesn't track where you drive.
GMAC Insurance, in collaboration with OnStar, offers a discount in 35 states for those who have a GM vehicle equipped with OnStar and drive less than 15,000 miles per year. By the end of 2011, GMAC hopes to offer the discount in almost every state.
The less you drive, the higher the discount, which can range from 8 percent to 54 percent, says Tim Hogan, GMAC's vice president - national accounts. Mileage information is collected by OnStar, and your discount grows for every 2,500 miles fewer you drive.
For example, someone who drives between 10,001 and 12,500 miles might save 18 percent, while someone who drives 7,501 to 10,000 miles per year might save 26 percent off standard rates.
A 2008 study by the Brookings Institution, a Washington-based think tank, found that two-thirds of all households nationwide would save money by purchasing pay-as-you drive insurance. Average savings would be $270 per vehicle.
Recently, the Federal Highway Administration awarded grants to a number of states with proposed projects aimed at easing traffic congestion. Among them was a grant of almost $2 million to the Texas Department of Transportation to test pay-as-you-drive insurance by working with Dallas-based insurer MileMeter.
Nancy Singer, a spokeswoman for the Federal Highway Administration in Washington, says the government's goal with the grants is to allow states a chance to explore innovative transportation ideas.
"We're just trying to give the states an opportunity to experiment with it and see how effective it is," Singer says.
MileMeter allows customers to only pay for the miles they use. It only offers such policies in Texas. Drivers purchase between 1,000 and 6,000 miles of insurance, and are covered for six months.
When drivers renew their policy, they pay for any extra miles used. Unused miles roll over to the next six-month period. Drivers typically save 25 percent to 75 percent per year on insurance.
MileMeter requires customers to take a photograph of their odometer, as well as a driver's license, and submit it when they're applying for or renewing their insurance. There's no mileage tracking device, which alleviates concerns about privacy and tracking drivers.
Hutchinson says some states allow monitoring for mileage but not for vehicle location.
Starting in February, California customers can enroll in pay-as-you drive auto insurance programs with State Farm and the Automobile Club of Southern California. With both programs, drivers can self-report their mileage.
State Farm customers can also have their mileage reported via OnStar, and Auto Club members can plug in a small "telematics" device that will record the number of miles they drive. Those who use the verified mileage methods will have slightly lower rates than those who self-report their mileage.
For many customers and state regulators, "the single biggest concern is locational privacy," Hutchinson says.
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