Mich. Regulators Notify Auto Insurance Cos. of PAYD Guidelines : Michigan’s Office of Financial and Insurance Regulation (OFIR) recently issued a bulletin reminding coverage providers that state law allows them to file rating plans for pay-as-you-drive (PAYD) coverage plans.
Under PAYD rating plans, policyholders can get significant auto insurance discounts when they keep their mileage below certain levels.
Insurers provide price breaks to lower-mileage motorists because, generally, drivers who are on the road less tend to get into accidents and file claims at a lower rate than higher-mileage drivers. A Brookings Institution study about the effectiveness of PAYD insurance programs looked at 2005 data from Progressive and found this to be the case. According to the data used in the study, policyholders who drove 5,000 miles a year filed property damage claims at an average rate that was about half that of policyholders who drove 25,000 miles a year.
Source: http://www.brookings.edu/~/media/Files/rc/papers/2008/07_payd_bordoffnoel/07_payd_bordoffnoel.pdf
Mileage is already used as a factor in many non-PAYD pricing structures, but these usually have mileage tiers that are much broader than those of PAYD structures. Additionally, PAYD policies generally require the use of some sort of verification component. This allows for a more accurate understanding of how many miles an individual puts in behind the wheel over the course of a year.
The interesting thing about Michigan’s regulations is that they allow insurers to base the price solely on mileage. According to a representative from the OFIR, this means mileage could potentially be the only rating factor that a Michigan insurer uses when setting the price of an insurance policy. The OFIR, though, is not aware of any insurers in the state currently using such a structure.
To learn more about PAYD and other ways to save on premiums, readers can go to http://www.onlineautoinsurance.com/discounts/ where visitors will find informative resource pages and a quote-comparison generator that can be used to help track down the best prices for coverage.
