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AIA: CA Pay-As-You-Drive Regulations Flexible But Says Data Should Also Be Used for Risk Assessment

Source: AIA

Posted on 21 Oct 2009

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The American Insurance Association (AIA) says the pay-as-you-drive regulations, approved by the Office of Administrative Law on October 15, are a step in the right direction because they provide greater flexibility for insurers and consumers. Unfortunately, the new regulations restrict the collection and use of location information which is a proven and valuable risk assessment tool.

“AIA constructively participated with the California Department of Insurance in the development of these regulations,” said Dave Snyder, AIA vice president and associate general counsel. “We share the desire to reduce unnecessary driving and related greenhouse gases, but this must be done in the context of actuarial and legal standards for rates that reflect risk.”

Commissioner Poizner’s regulations make a new, more mileage-accurate auto insurance option available for California consumers. The regulations allow insurers to offer discounts to drivers who opt to purchase a mileage verification policy. The new pay-as-you-drive policies must be approved by the Department of Insurance prior to being made available in the marketplace.

“We appreciate that the regulation is based on allowing flexibility, which we think is key to encouraging product innovation, “said Snyder. “It is unfortunate that insurers are restricted from collecting and using location in the rating process because this information is very relevant to assessing risk. For this reason, the regulation will not accomplish all that it could in terms of risk assessment and accurate pricing. Nonetheless, there is much that is very positive about it.”

The regulations promulgated by the Department are now in effect. Insurers can immediately begin developing this product as an option for policyholders.