As economy sinks, pay-as-you-go car insurance soars

By Chris Kissell Posted : 09/12/2011

Pay as you drive insuranceAs job growth stalls and household budgets shrink, more drivers are warming up to cost-cutting "pay-as-you-go" car insurance programs. 

Pay-as-you-go car insurance plans peg your car insurance rate to the number of miles you drive. Drivers also receive discounts for avoiding violations and accidents, and for limiting time on the road during peak hours and late-night hours.

If you meet all pay-as-you-go requirements, it's possible to save up to 30 percent on car insurance rates.

A majority of drivers who took a joint MSN-Insurance.com online poll said they would at least consider driving less if it meant they could save money on car insurance. The poll results were as follows:

Would you be willing to drive less to cut your insurance rate?

  • Yes – 24 percent
  • It depends on how much money I could save – 35 percent
  • No – 21 percent
  • I can't drive less than I already do – 20 percent

The poll was conducted Sept. 1-6 and is not scientific.

Car insurance companies respond to demand

Two of the nation's biggest insurers are now responding to this growing demand for pay-as-you-go coverage. 

A few weeks ago, State Farm – the country's largest insurer – announced plans to introduce a new telematics-based effort dubbed In-Drive to drivers in Illinois. Additional states are slated to receive In-Drive in 2012.

Allstate – the nation's third-largest insurer – also recently expanded its Drive Wise pay-as-you-go program to Ohio and Arizona after an earlier rollout in Illinois.

It's no coincidence that pay-as-you-go insurance is on the upswing at a time when the economy is in a downward spiral, according to Robert Passmore, spokesperson for the Property Casualty Insurers Association of America (PCI).

"A lot of companies are offering it, and a lot of people are driving less and looking for ways to save money," he says.

More control, lower car insurance costs

If you join a telematics-based program, you'll typically be asked to install a device into your car's diagnostic port (located below the steering column) that records information such as:

  • How many miles you drive
  • How often you brake hard
  • How smoothly you navigate turns

Initially, privacy advocates raised concerns about these devices and their ability to snoop on drivers. But the success of programs such as Progressive's Snapshot and a GMAC Insurance program based on OnStar technology apparently has convinced more insurers that pay-as-you-go insurance is the wave of the future.

"It's really about rewarding those better, safer drivers, and the technology is now in place to do that," says Dan Kraft, Allstate director of new products and service development accountability.

Lori Conarton, a spokesperson for the Insurance Institute of Michigan, says pay-as-you-go programs make sense at a time when people are looking for cheap car insurance in an increasingly frugal America.

"The whole idea of paying only for the coverage you actually use is attractive to consumers," says Conarton..

She also  says drivers today like the idea of having their insurance costs "tied more directly to their individual behavior" instead of watching passively as their rates are determined by an insurer's risk profile.

The future of pay-as-you-go car insurance

Although pay-as-you-go insurance is just now catching on, advocates have been pushing it for years as a way to both save customers money and to achieve other social benefits, such as reducing traffic fatalities and cutting back on pollutants that contribute to global warming. 

A 2008 study by the Brookings Institution noted that, "Just as an all-you-can-eat restaurant encourages more eat­ing, all-you-can-drive insurance pricing encourages more driving. That means more accidents, congestion, carbon emissions, local pollution, and dependence on oil."

While it appears the world is catching up with those sentiments, it's unlikely that pay-as-you-go insurance will become the dominant form of pricing in the industry.

Kraft points out that such programs are not the best option for all policyholders. If you drive frequently or have a spotty driving record, pay-as-you-go probably doesn't make sense. 

"It's not going to be a program that we're going to end up seeing 60 [percent] or 70 [percent] or 80 percent of our customers opt into," he says.

Still, Kraft believes drivers who choose pay-as-you-go automobile insurance coverage to save a buck during hard times will stick with the program long after the economy heals itself. And Passmore still sees room for the trend to grow.

"If people like it and perceive it as a value and save money, why not?" Passmore asks.

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2 Responses to "As economy sinks, pay-as-you-go car insurance soars"
  1. Chris 19, Sep, 2011

    Allstate is No. 3, behind State Farm and Zurich Financial Services.

      Reply»  
  2. Nancy Fish 15, Sep, 2011

    When did Allstate drop to the third largest insurer? Who is number two?

      Reply»  

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