The car insurance giant Farmer's Group Inc. is considering offering a new, opt-in insurance plan based on the number of miles driven for its policyholders. The plan would be one of the first mile-based car insurance coverage policies in the U.S. According to Farmer's Group, this sort of policy could lead to lower car insurance premiums for the majority of covered drivers. The concept behind mile-based car insurance is that the smaller the risk a car insurance company takes when insuring a policyholder, the smaller the charge. By tracking where drivers are going and how much they're driving, more person-specific car insurance rate can be developed for individual holder.
Mile-based car insurance coverage has been attempted before in several countries, however in these cases they've relied on large or expensive devices installed in the monitored cars. Farmer's Group's new policy uses GPS chips in devices like the Apple iPhone and Blackberry to track the mileage of drivers. By-mile car insurance coverage will not be mandatory for policyholders. In addition, Farmers Group has clearly stated that they would oppose any state or national legislation that required drivers to use tracking devices to monitor their driving habits. The company will only use the data for car insurance purposes.
The insurance plans could be beneficial to certain types of drivers. Drivers could potentially buy car insurance for a certain number of miles that they expect to drive per month, or Farmer's Group could automatically adjust a car insurance premium depending on how many miles were driven and where the driver goes. Where someone who drives in high-risk areas with heavy traffic or high crime might what to avoid this type of plan, as rates could potentially increase, drivers who stay in safe areas and keep a low mileage per month would see much lower car insurance rates. Insurance companies see by-mile car insurance as a way to make policies and premium fees more accurate, and since all proposed plans would be opt-in, they argue that there's no potential privacy infringement. Information collected in a by-mile insurance policy will not be shared with other companies or used for any non-insurance purposes, and drivers will be able to opt back out of the plans at any time.
The new policy options should be available in select markets sometime in late 2009 or early 2010. Because of the unique setup of California car insurance law, it's likely that by-mile coverage will be offered to select California drivers first, then expanded to other states. The GPS chips in Apple's iPod and the Blackberry are essential to the plan, and drivers will probably not be able to opt in for the differential car insurance coverage without one of those devices.