Progressive Tests Mileage-based car insurance rate structure

The car insurance business is a competitive one; companies know that customers will shop around for the best possible rates, since no one likes to pay for expensive car insurance. Because of this, providers of auto policies are always looking for new ways to attract new customers and for ways to save money for their existing customers. One company that is on the forefront of this type of testing is Progressive, which is now testing mileage-based rates in four states - Iowa, Virginia, Arizona and Florida.

Most rates are based on extensive demographics of the customer’s geographic area. If you live in a city, you will likely pay more in premiums than someone who lives in a rural area. Progressive’s testing still takes some of this into account, but also takes into consideration how much a customer actually uses his or her car. That makes sense; the more you drive, the more likely you are to get in an accident. The company and customers feel that those with less risk should pay less in premiums.

The system works like this - Customers report their odometer reading when they sign up for the program, which comes with 5% discount just for signing up. They then report their odometer reading again every six months. The company uses the mileage data to compile a database from which they can determine appropriate pricing for their customers.

Extra discounts are available, depending on the miles driven. Customers can receive mileage-based discounts of up to an additional 10%, depending on how their vehicles are used. Ultimately, the information derived from the testing in the four states will help Progressive decide if they are going to roll out the program on a nationwide basis. So far, in preliminary testing, customers have saved an average of about 7% on their policies.

Another testing program is being used in Minnesota, although this one has a technological twist to it. In these tests, drivers do not need to report their odometer readings, as their cars have monitoring devices installed in them that report their mileage, speed and other driving factors to the company automatically. Drivers who are participating in this program also receive discounts just for participating. While this program may yield more accurate results than one that simply trusts the customers to provide their driving information, such a program of automatic monitoring may alarm those who are concerned with privacy.

In time, more companies will probably start to offer mileage-based pricing. In California, insurance companies are not required to take a customer’s driving record into consideration more than where they live. It’s only a matter of time before the amount of use is entered into the mix. This is good for customers, who never want to pay for coverage at all, and certainly don’t want to pay for more than they need. In ten years, all such pricing will probably be mileage and record based, rather than based on pure geography.

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