Washington Considers Pay-As-You-Drive Insurance
By Patricia-Anne TomWashington is considering a proposal that would allow drivers’ insurance rates to be based primarily on the number of miles driven per year. Supporters of the pay-as-you-drive bill, Senate Bill 5730, said pricing insurance per mile is more equitable because low-mileage drivers would no longer subsidize high-mileage drivers, and drivers would be incentivized to drive less and save money in insurance, fuel, and vehicle maintenance costs. That subsequently would reduce accidents, congestion and pollution, they say.
The bill also suggests that if an insurer decides not to file a mileage-based rate plan, then it would be required to offer a discount for all motor vehicle liability policies for vehicles that are driven less than 5,000 miles per year.
Insurance Commissioner Mike Kreidler generally supports the PAYD concept, but has said he has concerns on what would happen to the insurance coverage if a vehicle passes the 5,000-mile mark.
Nothing would prohibit insurers from continuing to use other rating factors, such as the age of the driver, gender, location, vehicle type and driving record.
Currently, my role within an insurance company is that of a Pricing Analyst. I am constantly assigned different states to analyze our current rating structure, and compile the necessary data in order to help teams decide if we need to increase our rates and how we can go about the process of raising/decreasing rates in a segmented way. As an organization, we are constantly trying to get at ways that we can better quantify the risks that we are taking on, using some of the exposure factors the article discusses, such as age of drivers or homes, locations and many others. However, technology has allowed for even more sophisticated methods of measuring risk. With "Pay-As-You-Drive" insurance, there is benefit to both insurers and insureds. Insurers have less worry that potential insureds are underestimating their exposure base in order to receive lower rates, and insurers no longer have to worry about being overcharged by their carriers because of potential overestimates of exposure.
To illustrate just how accurate this type of rating system works, upon purchasing this type of policy, insureds are asked to pay a deposit based on estimates of how many miles are driven during the policy period. Then, insurance companies sell GPS monitoring devices to their customers and the actual mileage driven is recorded. Afterwards, premiums can be adjusted upward or down, depending on if the actual mileage was lower or higher than the initial estimate.
It is interesting to think of how this type of technology will find its way to different lines of business such as property and even commercial insurance. Perhaps I will find myself in a focus group aimed with this very task in the near future.
Would you be more likely to purchase this type of insurance in order to receive potential savings on insurance?
Currently, my role within an insurance company is that of a Pricing Analyst. I am constantly assigned different states to analyze our current rating structure, and compile the necessary data in order to help teams decide if we need to increase our rates and how we can go about the process of raising/decreasing rates in a segmented way. As an organization, we are constantly trying to get at ways that we can better quantify the risks that we are taking on, using some of the exposure factors the article discusses, such as age of drivers or homes, locations and many others. However, technology has allowed for even more sophisticated methods of measuring risk. With "Pay-As-You-Drive" insurance, there is benefit to both insurers and insureds. Insurers have less worry that potential insureds are underestimating their exposure base in order to receive lower rates, and insurers no longer have to worry about being overcharged by their carriers because of potential overestimates of exposure.
To illustrate just how accurate this type of rating system works, upon purchasing this type of policy, insureds are asked to pay a deposit based on estimates of how many miles are driven during the policy period. Then, insurance companies sell GPS monitoring devices to their customers and the actual mileage driven is recorded. Afterwards, premiums can be adjusted upward or down, depending on if the actual mileage was lower or higher than the initial estimate.
It is interesting to think of how this type of technology will find its way to different lines of business such as property and even commercial insurance. Perhaps I will find myself in a focus group aimed with this very task in the near future.
Would you be more likely to purchase this type of insurance in order to receive potential savings on insurance?
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