Pay-As-You-Go Insurance Debated in Massachusetts

Seen in the Salem News:

Tucker is on the Legislature’s Financial Services Committee, which is currently considering two pay-as-you-drive bills. Their primary backers are Rep. Carl Sciortino, D-Somerville, and Rep. James Marzilli, D-Arlington.

The bills would allow the state’s insurance commissioner to base insurance rates on a “pay-as-you-drive” or a cost-per-mile basis. The more a motorist drives, the higher the insurance rate. Both bills recommend that a study be conducted on the benefits of the plan.

If approved, the change wouldn’t happen all at once. Sciortino’s bill would phase in the change. For example, by Dec. 31, 2010, he wants the “pay-as-you-drive” policies to represent at least five percent of the policies that they sell.

Ummm. I’m not sure that moving to a system of insurance that hasn’t caught on in other parts of the country is exactly the best idea to resolve the issues with Massachusetts auto insurance.

Pay-as-you-go is a wonderful idea in theory that has issues in implementation. Specifically, verifying mileage is a problem. Insurers have the option of:

1. Asking consumers to self-report odometer readings, hope that they respond, and ignore the fact that the ridiculous level of dishonesty traditionally associated with mileage-based classifications or discounts is somehow diminished.
    
2. Require consumers to report periodically to their agents for odometer readings (not sure how this would work for customers who purchase through direct writers.not that there are many direct writers operating in Massachusetts to begin with).
    
3. Install or access black boxes in every auto, potentially gaining access to not only mileage readings but a host of other data (hard brakings, speed traveled, time of operation). It’s a wonderful idea that would finally allow ratemaking to be based on how a vehicle is driven (as opposed to the false belief that claims history and MVR’s provide much in the way of meaningful data for the majority of the population)..but which suffers from having been patented by one insurer, and which would presumably raise privacy concerns among consumer advocates.

Legalizing pay-as-you-go is a great idea. A fix to the issues in the Massachusetts auto market it is probably not. Mandating a certain level of usage is probably not a great idea.at least not until after existing patents expire.