Examiner Editorial: ‘Pay as you drive’ plan is a win for all concerned

From the Environmental Defense Fund to the California Association of Insurance Companies, everybody loves “pay as you drive.”

State Insurance Commissioner Steve Poizner’s new regulations give motorists the option of purchasing coverage based more directly on the actual total miles driven. The Examiner sees no downside to a program that saves money for drivers by giving them an incentive to help save the planet.

The Brookings Institution think tank estimates that nearly two-thirds of California families would pay less under Poizner’s plan — typically $276 per family vehicle yearly. If one-third of California vehicle owners choose to participate, the state would eliminate approximately 55 million tons of carbon dioxide from the atmosphere by 2020 — the equivalent of removing 10 million cars from the road. Gasoline purchases would be cut by 5.5 billion gallons, and consumers would share some $40 billion in savings on auto-related expenses.

“Pay as you drive” is a classic example of the public and consumer benefits from increasing fair-market options by easing unnecessary restrictions. It also demonstrates that the most effective way to get drivers out of their cars is to offer meaningful financial incentives and convenient transit alternatives instead of additional punitive limitations.

Insurance based on real miles driven is hardly an untested idea. It is already available in 34 states, Canada, Japan and Europe. Although today’s insurance premiums do consider estimates of annual miles driven, those estimates are usually both arbitrary and inaccurate. “Pay as you drive” allows insurers to offer rates on true mileage verified from odometer readings, repair records or an inexpensive wireless device that transmits mileage totals.

Pending legislation to mandate the same insurance option was canceled after Poizner announced the new voluntary regulations. The insurance commissioner said companies are prohibited from tallying mileage with GPS tracking devices that also reveal the vehicle’s location, hours of operation and other details. The first version of the now-canceled bill had sparked privacy-violation concerns because of the GPS issue.

“Pay as you drive” has brought Poizner, a Silicon Valley Republican, an unusual amount of kudos from environmentalists and consumer advocates. As insurance commissioner, he has been noticeably more proactive than recent predecessors, winning millions of dollars in rate reductions and premium reimbursements from major insurers such as Fireman’s Fund and Continental Casualty.

Poizner and Gov. Arnold Schwarzenegger were the only Republicans elected to statewide posts in 2006, and now Poizner’s record as insurance commissioner is likely to help him run for governor when Schwarzenegger is termed out in 2010.

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