INSURANCE:

Regulators shy away from imposing emissions-cutting auto policies

SAN FRANCISCO -- Key insurance regulators said yesterday that they will not require the industry to offer auto policies that reduce emissions by rewarding motorists who drive less.

They also shied away from a new plan to make those policies, often called pay-as-you-drive, standardized across the nation, similar to other environmental movements like Energy Star appliance standards and the green building code called LEED, or Leadership in Energy and Environmental Design.

"I doubt that we'll ever require pay-as-you-drive," said Joel Ario, Pennsylvania's insurance commissioner and chairman of a national climate change task force.

That assertion follows months of research by Ario and other regulators who have promoted the "drive less" concept. They believe motorists will leave the car at home if their insurance rates decline with the number of miles they drive. That can cut into the transportation sector's carbon output, which amounts to about 28 percent of the nation's greenhouse gas emissions. Light-duty vehicles account for about half of that pollution.

But Ario and Washington state insurance commissioner Mike Kreidler, two of the biggest proponents of pay-as-you-drive, said it's their hope that insurance companies will adopt the programs voluntarily.

"We'll get the best results if we give the industry room to experiment and innovate, and don't get prematurely on 'This is the one way to do it, and all the rest of the ways are wrong,'" Ario said yesterday at a climate summit he hosted with the National Association of Insurance Commissioners. "I think we need to be open."

Some companies offer 'pay as you drive'

The idea is expanding quickly. Progressive Insurance Co. offers pay-as-you-drive policies in 19 states, and California launched a voluntary program in October. A smattering of smaller companies are offering similar products.

But each policy is different, and a handful of environmental groups say a standardized approach would expand its use while ensuring that environmental objectives are met. A Brookings Institution study last year estimated that if every driver had a miles-based insurance policy, car travel nationally would be reduced by 8 percent. That would cut emissions 2 percent and save each household $270 annually, on average, per car.

"Scaling up Pay-As-You-Drive in the marketplace is essential for maximizing its many consumer, environmental and social benefits," Mindy Lubber, president of Ceres, one of the groups involved in developing the standard, said in a statement. "This performance standard is designed to spur insurers across the U.S. to expand their Pay-As-You-Drive products, and to make them more robust."

The proposed standard foresees three tiers of insurance: gold, silver and bronze.

The price of gold premiums would change with every mile driven. If a motorist reduced her annual driving by 50 percent, the premium would be cut in half.

Silver premiums would offer discounts for every reduction of 250 miles. Under this plan, a 50 percent reduction in driving would provide a 40 percent discount.

The bronze plan would measure driving reductions in 500-mile increments. Discounts would be given for every mark reached. If a driver cut his annual miles by 50 percent, he would see a 25 percent savings in insurance.

Ario, the Pennsylvania regulator, supports the standard, but says it won't be imposed on the industry as a mandatory benchmark anytime soon.

Standardized policies may come later

Evan Mills, a contributing scientist to the U.N. Intergovernmental Panel on Climate Change and expert on insurance, said standardization often comes from within private industry.

"It's not necessarily a regulator who's the only messenger for that," he said.

Sharlene Leurig, who heads Ceres' insurance program and who helped to develop the standard, said she and other environmentalists will work at the state level to impose the system. She noted that a national standard is optimal.

"We don't know that it's necessary that commissioners make it a mandatory offering," she said of the standard. "We do have hopes of getting commissioners to use this in their states."

Ario said the big challenge will not be requiring insurers to offer climate-friendly policies, but rather getting out of their way when they're trying to be innovative. In the past, regulators have sometimes made it difficult for insurers to shift with the changing times.

Pay-as-you-drive, often referred to as PAYD, is rooted in measuring a driver's mileage. Progressive uses a small device that motorists can plug into their dash under the steering wheel. It transmits data like a cellular phone, and motorists can view their driving habits online, including behavior like hard braking and gas-guzzling acceleration that can add emissions to the air. The device is license-protected, and other insurers balk at paying a competitor to use their technology.

Concerns about 'Big Brother' tracking devices

But there are other ways to measure mileage. California, for example, allows motorists to self-report their distance traveled, or lets licensed smog inspectors read motorists' odometers. That's one solution to what became an uprising among California privacy advocates concerned about "Big Brother" tracking their location, according to Adam Cole, general counsel for the California Department of Insurance.

"The issue of technology has generated a great amount of controversy. Huge," Cole said. "We are not allowing any insurance company to stick a device in the car to determine where you are."

Other states may follow California's lead and provide clarifying regulations around a voluntary program.

Kreidler, the insurance regulator for Washington state and vice chairman of the insurance commissioners' national climate change task force, said motorists will drive a "dramatic" change by demanding the money-saving policies.

"I think it's really going to be driven a great deal more by economics of the individual," he said. "I would make a prediction that over the next 10 years, you're going to see this phased in."

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