PAYD Hits the Road

California has approved the pay-as-you-drive regulations for insurance companies.

"Pay as you drive is an innovative way to give California motorists financial rewards for driving less, leading to lower-cost auto insurance, less air pollution and a reduced dependence on foreign oil," California Insurance Commissioner Steve Poizner said in a statement. "After a year of hard work by my team at the Department of Insurance, and months of working with consumer groups and other valuable parties to fine tune these regulations, these regulations are now in effect, and I encourage insurance companies to start offering this pay-as-you-drive option to California consumers."

However, the American Insurance Association (AIA) contends the new regulations restrict the collection and use of location information by insurers.

“We appreciate that the regulation is based on allowing flexibility, which we think is key to encouraging product innovation,” said Dave Snyder, VP and associate general counsel for the AIA. “It is unfortunate that insurers are restricted from collecting and using location in the rating process because this information is very relevant to assessing risk. For this reason, the regulation will not accomplish all that it could in terms of risk assessment and accurate pricing. Nonetheless, there is much that is very positive about it.”