Conservation - Several states, including Oregon, would allow the practice, but insurers aren't biting

Pay-as-you-drive automobile insurance, a concept permitting motorists to buy coverage on a per-mile basis, is attracting attention as one answer to soaring gasoline prices and worsening traffic gridlock.

With pay-as-you-drive, insurance factors such as driving history, vehicle type and geographic location are incorporated into the per-mile price, which generally ranges between 2 and 10 cents. Mileage readings are captured through sensors in cars or authorized odometer readings.

Advocates say that if people could save money by reducing miles driven, instead of paying an annual or semiannual premium, they would take fewer trips or be more likely to use other forms of transportation. Studies have estimated the concept could reduce overall driving by around 10 percent.

"It's almost a no-brainer when you look at reducing gasoline use and conserving oil," said Dean Baker, director of the Center for Economic and Policy Research, a Washington think tank.

Maryland state Sen. Lisa Gladden, D-Baltimore, who has sponsored pay-as-you-drive legislation, said she tried to show the appeal of the concept by bringing a pound of grapes to a legislative hearing.

"I said, 'If this pound costs a dollar, but I only eat half of them and you still charge me a dollar, is that fair?' " Gladden recalled. "That's the way we as consumers do business with auto insurance."

A 2002 Georgia Institute of Technology study found pay-as-you-drive insurance could legally be offered in 27 of 43 states surveyed, including Oregon, Alabama, Michigan, Ohio and Pennsylvania. In the other states, including Louisiana and New York, it found laws would need to be changed.

But the insurance industry has been largely skeptical. Texas in 2001 passed the first law to formally allow insurers to offer pay-as-you-drive insurance, but no companies have responded.

"What insurers are doing is continuing to use systems that they know work," said Rick Gentry, executive director of the Insurance Council of Texas, a trade association of insurers writing business in the state. "If insurers figured out a more efficient, less risky way to offer insurance, they would have jumped on it."

Dick Luedke, a spokesman for State Farm Insurance, said insurers are concerned that miles driven could be overemphasized at the expense of other factors in determining premium levels.

"We use everything we can to assess the cost (of insurance) so that we can charge premiums that are appropriate," Luedke said.

Pay-as-you-drive advocates say they are confident the industry will warm to the idea as drivers learn more and demand it. They cite several recent signs of progress.

Insurers in several countries, including England and Japan, have begun offering pay-as-you-drive. England's Norwich Union Insurance, which installed small recorders in 5,000 customers' cars in a 2003 pilot program to capture mileage data, subsequently ordered 35,000 more recorders to meet growing demand.

King County, Wash., officials are negotiating with an insurance company to run a five-year pilot program, said Bill Roach, the county's program manager for transportation demand management.

"We're finally beginning to make some inroads," Roach said. "I'm quite optimistic. If you had talked to me a year ago, I would not have been."

Meanwhile, an insurance company recently expressed interest to the Oregon Environmental Council about offering pay-as-you-drive in the state, said Chris Hagerbaumer, the Portland group's director of programs and acting executive director. The 2003 Legislature passed a tax credit for companies that offer the insurance.

Hagerbaumer would not name the company, but said the establishment of any program is still at least a year away.

In California, the state Office of Administrative Law in July approved regulations that would require auto insurance rates to be based more on miles driven and driving records than on where a driver lives. Advocates said the action could eventually lead to a pay-as-you-drive system.

If the idea is to become widespread, however, advocates acknowledge they will have to assuage privacy concerns about the Global Positioning System devices that are often used to record mileage under pay-as-you-drive.

Some privacy groups fear that if an insurance company keeps records of drivers' whereabouts, the firm could be forced to yield that information if it is subpoenaed in a lawsuit.

"People are wary about the whole Big Brother thing," said Josh Kessler, an analyst for TowerGroup, a financial research and consulting firm in Needham, Mass.

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CHUCK McCUTCHEON
The Oregonian

©2006 The Oregonian