As mentioned in our last post, Verified-Mileage is the most basic version of Usage-Based or “Green” car insurance. As opposed to “Behavior-Based” approaches, the only vehicle “usage” it considers are the actual miles driven — not when, how or where they are driven.
The State of California conducted a year-long regulatory process before issuing their final regulations in October 2009 for “Pay-Drive”. (They coined the phrase, apparently to use a descriptive name like the U. S. trademark Pay As You Drive® owned by Progressive Insurance, while avoiding legal issues.) As the easiest starting point, and in deference to concerns raised by many privacy organizations, the California regulations prohibit insurers from using data from customer vehicles to set rates, other than to prove “actual miles driven”.
After six months with no insurer filing to offer a Verified-Mileage policy, it was just announced that State Farm filed in mid-April. If that filing is approved, they will launch their California Drive Safe & Save™ Verified-Mileage policy in September. They already offer a Drive Safe & Save™ policy in Ohio, but some aspects are different, likely due to Ohio’s and California’s unique regulatory requirements.
This should trigger California filings by other insurers, for the same reason that insurers like State Farm have responded to Progressive’s earlier launch of Behavior-Based Pay As You Drive® policy MyRate®. The first-mover with Usage-Based Insurance in a market — Progressive in 19 states so far, and State Farm in California — plans to win as many new, lower-risk-but-profitable customers as possible. Competing insurers either follow suit or stand to lose their existing lower-risk customers to the earlier-movers.
That type of reactionary response is well-known in the insurance industry, and goes by the name “protecting your current book of business”. Insurers never issuing Usage-Based policies in a market are likely to lose most if not all of their lower-risk (and higher-profit) customers, since they can get lower premiums through Usage-Based policies offered elsewhere.
Crystal-ball gazing to predict the future of Usage-Based Insurance is nearly over. Very soon everyone will see how this looming battle among insurers actually plays out. It shouldn’t take long in California, the country’s largest auto-insurance state market, now that the country’s largest insurer State Farm has fired the first shot.