Pay as You Drive (PAYD) Car Insurance

Many Mainers, especially retirees and those who bike, walk,  bus or live close to work, drive less than the average American. That’s one reason Maine’s auto insurance premiums are among the lowest in the country, despite our harsh winters.  Still, many of our clients ask about Maine auto insurance discounts for driving fewer miles.

The idea appeals to our common sense, doesn’t it? Even the Freakonomics guys agreed. Here’s some of what they wrote in their April 20 column in the New York Times Magazine:

Imagine that Arthur and Zelda live in the same city and occupy the same insurance risk pool but that Arthur drives 30,000 miles a year while Zelda drives just 3,000. Under the current system, Zelda probably pays the same amount for insurance as Arthur.
While some insurance companies do offer a small discount for driving less — usually based on self-reporting, which has an obvious shortcoming — U.S. auto insurance is generally an all-you-can-eat affair. Which means that the 27,000 more miles than Zelda that Arthur drives don’t cost him a penny, even as each mile produces externalities for everyone. It also means that low-mileage drivers like Zelda subsidize high-mileage drivers like Arthur.

Every auto insurer in Maine uses the system described above. They ask how you use your vehicle, and give a small discount to those who tell them that they use theirs for “pleasure use” or a “short commute”.

But one insurer, Progressive, has introduced a “pay as you go” system they’ve dubbed “MyRate“.  It promises discounts for driving fewer miles, not driving late at night, and driving defensively. Sounds good, huh? As with many seemingly simple ideas that appeal to our “common sense”, the devil is in the details.
  1. The program requires credible monitoring that yields reliable results. Progressive has developed a chip that you plug into your car’s OBD (on-board diagnostic) port. The device monitors your speed, the time of day you’re driving, and how many miles you drive. It’s not a GPS – it doesn’t report WHERE you are – but the amount of data it does collect and send to Progressive has given pause to some who are concerned with privacy in the digital age.
  2. Your insurance rates can also INCREASE if your driving habits change (new job? take up hiking or camping? new long-distance love interest?), or reflect a higher risk profile (kid starts driving?). While you can quit the program, if you stay with Progressive, they may use the data about you that they’ve collected when rating your future policies.
  3. The device costs about $30.00 to buy, and the premium quote you used to evaluate whether to buy the policy was only an up-front estimate. So, even if you thought that your discount would more than pay for the up-front cost, that can change (see #2 above).
  4. MyRate is currently not available in Maine. In fact, it’s only available in 8 states, New Jersey being the closest. And, what we consider the biggest drawback of all…
  5. You can’t buy a MyRate policy from an independent insurance agent; the only channel where it’s available is from Progressive Direct. This means that you’re on your own in dealing with the insurance company if you choose to buy a policy this way.

Maybe MyRate makes sense for you after reviewing the facts of the program. We do like some of the features. It rewards safer driving and less-risky behavior. It also rewards those who choose to drive less, which is good for the environment and for our communities too.

What we don’t like is that Progressive chooses to only sell the product directly to consumers. Of course, part of that is self-interest: we’re insurance agents after all. If we don’t believe we add value to the insurance transaction, then we should just wither away to extinction. But most Progressive customers agree, and prefer to buy from an independent agent. The vast majority of their Maine auto insurance business is produced through local agencies.
Insurance is complicated enough; this new method offers its own twists, not to mention the privacy concerns mentioned above.  We wonder how many people will feel comfortable facing this new insurance model without a local professional to help, advise and advocate for them. Why not allow customers to use an agent to help them vet this model to see if it really makes sense for their situation?