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Mileage-Based Auto Insurance
Published  04/25/2011 | Auto

In 2009, the California Department of Insurance approved mileage-based auto insurance regulations. This policy allows insurers to use verified actual mileage instead of, or in addition to, an estimated mileage program. The purpose behind the regulation: To give drivers a financial incentive to drive less and to help the environment.

For years, insurers have asked drivers to estimate the number of miles they drive annually. However, it was found that some motorists underestimated the mileage and others overestimated it. In fact, a 2006 Department of Insurance study found that 56 percent of drivers underestimated their annual mileage.

The regulations permit insurers, with the approval of the policyholder, to offer programs that allow the verification of the actual miles driven. At the end of the policy, the mileage is recorded and the premium is adjusted. The process for verifying mileage varies from company to company. Additionally, insurers may also offer policyholders the option to purchase auto insurance coverage for a specified price per mile.

The program is optional for both insurers, which are not required to offer such a policy, and policyholders, who may continue to purchase a policy based on estimated mileage. The California law specifically prohibits insurers from requiring the use of a device that collects information on the vehicle’s location.

The savings will vary from driver-to-driver and from company-to-company. Regardless of the variation, however, the regulation allows insurers to pass along any cost savings to policyholders as a result of increased accuracy due to mileage verification.

In addition to saving money, the usage based auto insurance has been touted as a “green” form of insurance by encouraging drivers to spend less time behind the wheel. More than 25 percent of all U.S. greenhouse gas emissions come from motor vehicles. Rewarding those who drive less with cost savings on their insurance is one method to reduce the amount of pollution. If implemented broadly, the amount of greenhouse emissions pumped into the atmosphere could be significantly reduced. According to a Brookings Institution study driving would drop by eight percent if drivers opted to pay by the mile.


ADDITIONAL RESOURCES
California Department of Insurance
Mileage-Based Auto Insurance Final Regulations