The Office of Financial and Insurance Regulation in Michigan recently released a bulletin stating that insurers in the state could write policies that are based primarily or solely on a buyers driving habits. While the pay-as-you-drive(PAYD) policies are not offered in Michigan yet, it brings an interesting issue to light. Are PAYD policies the wave of the insurance future?
PAYD programs are not widespread as yet, but many companies are evaluating how to proceed into the market. These policies are based on the average number of miles that you drive in a week, month or year. These numbers are crunched into a formula that spits out a potentially less expensive premium.
Progressive seems to really be on the cutting edge of this method. Their new SnapShot discount is their attempt. Drivers must allow Progressive to install a device into their computer diagnostic port. The device records and transmits driving information back to Progressive. That information is used to calculate a new premium that could be as much as 30% less cheaper.
The effectiveness and use of these new car insurance policies will be based on the few test policies being written. Currently, PAYD is widespread only among California auto insurance policies; however, we will see what the future brings.