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The Future of Car Insurance: PAYD


Pay-as-you-drive, or PAYD, car insurance is poised to take over as the new standard in car insurance policies. As technology continues to advance, the PAYD option will be easier for insurance companies and drivers to use. The potential savings for drivers and benefits for the environment make the PAYD system a win-win for everyone.

Only Pay for What You Use

With a traditional insurance policy, each driver's pays a premium based on the history of the overall group. This creates a loose estimate on each car's annual mileage. PAYD policies actually track the real mileage that each car drives in a month. The driver only pays insurance for the miles he or she actually drives. The system allows drivers to have more control over their insurance costs because they can adjust their driving habits to fit their budgets better. PAYD is a more equitable way for insurance companies to charge their customers based on each driver's individual driving habits rather than estimates and averages that don't always make sense for every driver.

Changing Driving Habits Good for the Environment

Drivers who are interested in saving money on their car insurance through a PAYD system will be more likely to examine how often they drive in general. Families could begin to consolidate trips so that they can conserve mileage. This could lead to fewer cars on the road, which would improve the air quality due to lower emissions. People who choose to drive less will also help reduce our dependence on fossil fuels as they conserve energy. Consuming less gasoline is good for the environment and is good for the driver's pocketbook.

Real Time Driving Data

The most popular PAYD system involves a data collection device that drivers install under the steering column. The device keeps track of how many miles the car is driven. Some companies utilize the OnStar system to track mileage. The data collection device also tracks how the car is driven and what times of day. If the car always accelerates quickly or comes to fast stops often, the insurance rates may increase because of the riskier driving patterns. Rates may also change if the driver operates the car late at night when the risk of having a high speed accident is higher. Customers can log into an insurance company's website to keep track of their data at any time.

Less Invasive PAYD Programs

Some consumers are concerned that having a device in their cars constantly tracking their driving is too intrusive. Americans tend to feel uncomfortable about having their movements tracked by anyone, no matter the reason. For this reason, some insurance companies are beginning their PAYD programs by offering insurance rates based on the reported vehicle mileage once a month. The monthly rate adjusts based on the mileage amount reported by the customer.

This system cannot offer the deeply individual rate advantages of the electronic data tracking PAYD systems, but it still customizes rates to the consumer better than traditional cookie cutter insurance rates developed with average mileage estimates. The monthly mileage report is a good system for people who are not comfortable with technology monitoring every move they make while driving.

Data Collection Concerns Outweighed by Benefits

Most drivers and insurance companies believe that the financial and environmental benefits of the PAYD system far outweigh any perceived violation of personal rights. The tracking system is voluntary, and those who use it generally pay lower insurance rates. Parents may also appreciate the opportunity to keep an eye on the driving habits of teenagers in a subtle way that causes less confrontation.

Putting Safety First

PAYD lets car insurance customers adjust their behavior to secure lower insurance rates. Drivers will create better driving habits as they see their rates come down each month. Driving more conservatively will become less expensive than driving recklessly. People who are interested in lowering their rates might actively try to avoid sharp stops, excessive speeds, and other behaviors that could lead to accidents. As more drivers become aware of their driving styles, the roads could become safer for everyone.

Majority of States Support PAYD

Only 12 of the 50 states do not have insurance companies that offer PAYD programs. Insurance companies are still testing the idea on a smaller scale and refining their systems. In some states, laws require the entire annual premium amount be presented to the consumer upfront, making PAYD programs against the law. New legislated is needed before such jurisdictions can install PAYD insurance.

The idea has spread quickly over the past few years, however, and is expected to cover the entire nation within the next few years as PAYD policies become more standardized. The increase in devices like OnStar and other navigating systems will also help spread PAYD opportunities into the areas where they are not available right now.

Progressive Provides Widest Coverage Options

The internet based car insurance company Progressive is leading the pack when it comes to offering PAYD policies. Drivers in 26 states can sign up for the Progressive Snapshot program. Customers who sign up for the program will receive a data collection device in the mail, along with instructions for installing it in their vehicles. As they drive, the device sends information back to Progressive. Within a month of starting the program, drivers will begin to see the mileage discounts applied to their rates. The Progressive program allows drivers to stop using PAYD at any time if they feel that they are not benefiting from it.

Other Insurance Companies More Conservative

Several insurance companies are entering the PAYD process more carefully. State Farm only offers the program in California, while Mile-Meter is only available in Texas. Allstate PAYD policies are only available in Illinois. Residents of Ohio and Pennsylvania can purchase PAYD through Erie insurance company. GMAC is a little more aggressive in its PAYD programs, offering them to 6 different states. As the idea of PAYD becomes more popular, more companies should begin to offer programs in more states. Right now, Progressive is the sole source for PAYD in many of the states. Rates should become more competitive as more insurance companies join the PAYD competition.

Below is a handy reference of companies offering PAYD insurance in each state as of April 2011:

Progressive Insurance:
AL, AZ, CO, FL, GA, IA, KY, LA, MD, MI, MN, MO, NE, NV, NH, NY, OH, OK, OR, RI, SC, SD, TX, UT, VA, WI

GMAC Insurance: ID, IL, MS, MT, PA, TN, WA, WV

Erie Insurance: OH, PA

Allstate: IL only

Mile-Meter: Texas only

State Farm: CA only

States that don't offer pay as you drive insurance (yet):

AK, AR, CT, DE, DC, HI, IN, KA, ME, MA, NJ, NM, NC, ND, WY, VT