SACRAMENTO — An alliance of insurance companies and environmentalists wants to bring a new kind of mileage-based auto insurance to California and charge motorists only for the number of miles actually driven.

Called pay as you drive, the option is available from a few insurers in 34 states -- but not California -- and Canada, Japan and Europe.

One company, GMAC Insurance Group, says its customers -- whose mileage is tracked by General Motors Corp.'s OnStar system -- have reduced the premiums they pay by 13% to 54%. And California drivers could expect to get similar savings if pay as you drive is approved here.

The system could cut motoring costs, protect the environment and reduce traffic congestion, boosters say. Opponents, mainly privacy advocates, say they fear that insurance companies could begin tracking more than just a driver's mileage. High-mileage drivers could also see higher rates.

People who agree to tie their insurance premiums directly to miles driven are likely to make the maximum effort to stay out of their cars. That way, proponents say, they'll save money on gasoline and insurance, the top two costs of owning a car.

"I'm getting good savings," said Mark Holcomb, a retired federal worker, who recently moved from San Diego to a suburb of Orlando, Fla. "I'm not driving so much, so my likelihood of an accident is lower."

Holcomb said he cut his insurance bill by $634 a year for his Cadillac Escalade and his Saab convertible by switching to a GMAC pay-as-you-drive policy.

The concept, if applied nationwide, would do a lot more than cut insurance bills, says a study by the Brookings Institution, a Washington think tank. Pay as you drive could create $52 billion in annual benefits from fewer accidents, reduced traffic and pollution and less reliance on foreign oil, the study concludes.

"This is a tool to reward drivers who actually drive less," said Assemblyman Jared Huffman (D-San Rafael), the author of a bill in the Legislature, AB 2800, to authorize pay as you drive in California.

Huffman's measure is sailing through the Legislature with little opposition. State Insurance Commissioner Steve Poizner is working on regulations that would put a similar proposal on the books.

Pay-as-you-drive skeptics say they're all for reducing auto use but are wary about how insurers might keep tabs on their customers. Others worry that the deep discounts offered urban drivers, who don't use their cars much, could be offset by making rural motorists pay more.

"The grocery store could be nine miles away," said Assemblyman Joel Anderson (R-San Diego), who voted against the Huffman bill. "I don't want to punish people" who live in the country.

GMAC and a second insurer, Progressive Corp., report widespread customer acceptance of their pay-as-you-drive policies in other states. Progressive says that about one-third of its new customers are volunteering for pay-as-you-drive pilot programs underway in Minnesota, Michigan and Oregon. GMAC says it has signed up 30,000 policyholders nationwide for a low-mileage discount program.

Proponents, including trade groups representing most major insurance companies, say that now is the perfect time for pay as you drive. With gasoline prices near $5 a gallon and likely to head higher, motorists are changing their driving patterns.

Last month the U.S. Department of Transportation reported that Americans drove 1.4 billion fewer miles in April than they did a year earlier.

But privacy advocates worry that companies might install sophisticated GPS devices on cars that would communicate via satellite where and when motorists travel and whether they are speeding or driving recklessly.

"It's going to give insurance carriers your exact location at all times and could wind up being subpoenaed in divorce proceedings and other lawsuits," said Paul Stephens of the Privacy Rights Clearinghouse in San Diego.

Insurance experts suggest that privacy concerns may have been the undoing of a pay-as-you-drive product launched two years ago by Britain's largest auto insurance company, Norwich Union. In June the company canceled its program after only 10,000 customers signed up.

Huffman said he didn't want to make the same mistake. He said his bill would track mileage but didn't endorse GPS surveillance. His bill would leave details about how to record mileage to the California Department of Insurance.

Poizner said he intended to explore techniques that are less invasive than GPS. Those include electronic monitors that check only odometer readings, accessing maintenance records and authorizing smog inspection stations to report mileage readings.

Under California law, the number of miles driven in a year is the second-most-important factor that insurers must use to compute a customer's premium. But companies complain that policyholders' estimates of how much they drive often are way off the mark. According to a 2006 Department of Insurance study, 56% of policyholders underreported annual driving.

"Allowing drivers to submit 'estimates' of inaccurate mileage breaks the connection between conduct and consequences," said a letter to the Assembly Insurance Committee from the Personal Insurance Federation of California, a trade group.

Said Yves Didier, who commutes from the San Fernando Valley to work as a police officer at Los Angeles International Airport, "Giving motorists a chance to save money by driving less is a good idea, as long as it's strictly voluntary.

"I personally would not want a device in my vehicle. I feel like it's another step toward Big Brother watching me," he added. "But if it's voluntary, I don't see any harm. It would create a benefit for the environment and obviously to certain customers."

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By Marc Lifsher
Los Angeles Times Staff Writer

Copyright 2008 Los Angeles Times