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Are you the quintessential safe driver? Do you drive less often in order to save gas? If so, shouldn't you be rewarded with an auto insurance discount?
GMAC® and Progressive® think so. That's why they're experimenting with programs that directly tie auto insurance rates to number of miles driven and, in certain cases, where and how those miles are driven.
Known as "pay-as-you-drive" insurance, the concept has gained a great deal of national attention as a way to offer drivers lower auto insurance rates.
What Is Pay-As-You-Drive?
Pay-as-you-drive is a usage-based program that records miles driven and adjusts auto insurance rates accordingly. GMAC® Insurance (the insurance arm of General Motors®) offers a "Low-Mileage Discount" version of the pay-as-you-drive concept. Consumers participate in the program voluntarily, and receive an 11% reduction just for participating and up to 54% in discounts for keeping a low annual mileage. The program is currently available in 34 states.
Progressive®'s version of the pay-as-you-drive program is called "MyRateTM" and is currently only available in eight states. However, as of June 27, 2008, the company has announced that the program will become available nationwide.
According to Gary Kusumi, president and CEO of GMAC® Insurance: "Customers who drive less should pay less, and this program allows customers to use technology already in their vehicles to give them the discounts they deserve."
How Does It Work?
For Progressive consumers, a device about the size of a small cell phone is placed in the vehicle. This device is used to monitor driving habits and wirelessly transmits the data back to Progressive. According to Progressive®'s website, the company tracks three specific trends: how far you drive, when you drive, and how aggressively you drive. The data collected is then used to determine your auto insurance discount, which is applied at each six-month policy renewal.
OnStar® systems installed in GM® vehicles automatically track miles driven and adjust insurance premiums accordingly.
The primary benefit of pay-as-you-drive is obvious: low-cost auto insurance. Under the GMAC® program, consumers can save 11% just for participating and up to 54% if they drive less than 2,500 miles per year. Drivers are not penalized if their annual mileage exceeds 15,000. For Progressive®, drivers could cut their auto insurance rate by up to 40%.
According to a report by Jason Bordoff and Pascal Noel of The Brookings Institution, a Washington D.C.-based nonprofit public policy organization, about two-thirds of households would save money with a pay-as-you-drive program. The average household would enjoy an annual savings of $270 per vehicle.
It remains to be seen whether pay-as-you-drive programs will continue to gain traction nationwide. But if they do, auto insurance companies throughout the country will likely follow GMAC® and Progressive®'s lead.
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