Pay-Per-Mile Auto Insurance In California: What Is And Is Not Allowed

Pay-per-mile auto insurance, also known as usage-based insurance (UBI), is a type of car insurance policy that calculates premiums based on the number of miles driven. This innovative insurance model offers drivers the potential to save money by paying for only the miles they actually drive, rather than a fixed premium. However, like any insurance product, pay-per-mile auto insurance has its advantages and disadvantages. In this article, we’ll explore the pros and cons of pay-per-mile auto insurance to help you decide if it’s the right choice for you.

Is pay-per-mile insurance different in California?

California is the one state where an insurer cannot price your policy on how you drive. Proposition 103 requires the Insurance Commissioner to approve any rating factor before it can be used, and behavioral telematics has never been approved.

What is allowed: verified mileage. Annual miles driven is one of the three mandatory factors under Proposition 103, and the Department of Insurance permitted the use of devices to verify mileage back in 2009. That is why pay-per-mile pricing exists here at all.

What is not allowed: how you drive. Hard braking, rapid acceleration, night driving, phone handling and cornering are all measurable, and none of them may be used to set a California rate. Insurers are also barred from collecting vehicle location data.

So a national article describing a program that rewards smooth braking is describing a product that does not exist in this form here. In California the device is counting miles, not grading you.

What can a telematics program actually use to price your policy?

The difference is easier to see side by side.

What a program can measure	Most states	California
Miles actually driven	Used	Used, and one of three mandatory factors
Hard braking and rapid acceleration	Commonly used	Not permitted
Speed	Commonly used	Not permitted
Time of day, such as night driving	Commonly used	Not permitted
Phone handling while driving	Increasingly used	Not permitted
Vehicle location data	Often collected	Insurers barred from collecting it
Driving safety record	Used	Used, mandatory and carries the most weight
Years of driving experience	Varies	Used, mandatory
Credit history	Used in most states	Not permitted

A concrete example. Tesla sells insurance in California and in a number of other states, and it prices them differently for this reason. Its own published documentation says the real-time product built around Safety Score is not available in California. The California product does not use Safety Score to set the monthly premium, and policyholders here may opt in to see the score for educational purposes only. The same score adjusts premiums elsewhere.

The Department of Insurance has been explicit about why. Since 2009 it has allowed vehicle data to be used to determine actual miles driven, and only in a way that protects the driver’s privacy.

This is under debate. Assembly Bill 311 would let drivers opt in to behavior-based pricing. It has moved through committee and the Department of Insurance opposes it, arguing it conflicts with Proposition 103. It is not law.

Legislation moves. AB 311 was pending when this was written, and the current status is published by the California Legislature.

What are the advantages of pay-per-mile?

1. Potential Cost Savings:
   One of the most significant benefits of pay-per-mile auto insurance is the potential for cost savings, especially for low-mileage drivers. By paying only for the miles driven, policyholders can enjoy reduced premiums compared to traditional fixed-rate policies. This can result in significant savings for individuals who drive infrequently or have short daily commutes.
2. Fairness and Transparency:
   Pay-per-mile insurance promotes fairness and transparency by aligning premiums more closely with actual driving habits. Drivers who use their vehicles less are rewarded with lower costs, and those who drive more pay more. In California the measure is mileage rather than driving behavior. This can incentivize responsible driving and encourage individuals to reduce unnecessary trips or opt for alternative modes of transportation.
3. Environmental Benefits:
   Encouraging reduced driving through pay-per-mile insurance can have positive environmental impacts by reducing greenhouse gas emissions and traffic congestion. By incentivizing drivers to use their vehicles more efficiently and consider alternative transportation options, pay-per-mile insurance contributes to sustainability efforts and promotes eco-friendly practices.

What are the drawbacks?

1. Limited Availability:
   Despite its growing popularity, pay-per-mile auto insurance may not be widely available in all regions or from all insurance providers. Limited availability can restrict options for drivers seeking this type of coverage, particularly in areas where traditional insurance models dominate the market.
2. Privacy Concerns:
   Pay-per-mile insurance relies on a device or an app to record mileage, which raises privacy questions even where only miles are being recorded. Some drivers may be uncomfortable with the idea of having their driving habits monitored and shared with insurance companies, potentially compromising their privacy rights.
3. Complexity and Potential Penalties:
   While pay-per-mile insurance offers the potential for cost savings, it also introduces complexity and the possibility of charges for exceeding the mileage allowance. In California the exposure is mileage rather than driving behavior, since behavior may not be used to set the rate. Mileage still has to be recorded accurately and the policy terms met.

Does pay-per-mile fit how you drive?

Pay-per-mile auto insurance offers an innovative alternative to traditional fixed-rate policies, providing drivers with the opportunity to save money and align premiums more closely with their actual driving habits. However, it’s essential for drivers to carefully consider the pros and cons of pay-per-mile insurance and evaluate whether it’s the right fit for their needs and preferences. By weighing factors such as cost savings, fairness, environmental impact, availability, privacy concerns, and potential penalties, drivers can make informed decisions about whether pay-per-mile auto insurance is the right choice for them. Mileage-based pricing is not the only route for someone who drives very little, and the alternatives sit alongside it in what is available to occasional drivers.

Consulting with insurance providers and exploring different coverage options can help drivers find the best insurance solution that meets their unique needs and priorities.

At Schneiderman Insurance Agency, we walk clients through their options and help them decide what fits. To learn more about how we can help you, please contact our agency at (818) 322-4744 or request a quote online.

Disclaimer

This article is provided by Schneiderman Insurance Agency for general informational purposes only. It is not legal, tax, financial, claims, or coverage advice. We are licensed insurance professionals, not attorneys, accountants, or financial advisors, and nothing here should be relied on as a substitute for advice from a qualified professional in those fields. This content is general in nature and is not a review of, or a recommendation for, any individual reader’s specific insurance needs, policies, or circumstances. Insurance coverage depends entirely on the specific terms, conditions, endorsements, exclusions, limits, underwriting eligibility, carrier, and facts of each situation, and the actual policy language always controls. We do not guarantee any coverage, pricing, eligibility, underwriting approval, or claim outcome. Reading this article does not create an agent-client relationship. To understand how these issues apply to your situation, please review your own policy and speak with a licensed insurance professional, and consult legal, tax, or financial advisors where appropriate.