1. You'll pay for your friend's bad driving

If your friend borrows your car and crashes it, you'll have to file a claim with your insurance company. You'll have to pay any deductible that applies, and your rates could go up as a result of your claim, especially if you have made other recent claims.

What you can do: If the person who took your car didn't have permission to take the vehicle, in most cases you won't be held liable for the damage. If your friend is uninsured and causes damage that exceeds your policy limits, the injured party can come after you for medical and property-damage expenses. Best bet? Don't loan out your car.

2. Your personal property in your car isn't covered by your auto insurance

Stolen or damaged items like compact discs aren't covered by your auto insurance.

What you can do: You can file a claim on your home insurance (if the cost of the lost items is more than your deductible). However, if you carry expensive items such as computer equipment, you'll need a rider to your home insurance policy for proper coverage above the normal limits. You'll also be in better shape if you have photos or video of the items.

3. You may be entitled to payment for sales tax and registration fees for a new car

Most states require insurers to pay sales taxes on total loss settlements, according to the Property Casualty Insurers Association of America. Some states require the insurer to pay it at the time of loss while other states require it to be paid only if you purchase a replacement vehicle within a certain time period. In addition, some states require it only for first-party claims (the claim you make on your own policy) but not third-party claims (the claim you make on someone else's policy). For more, see Recouping expenses after your car is totaled.

What you can do: Make your request for sales tax reimbursement no matter what state you live in.

Even in states that do not require sales tax reimbursement, you should request it.

Be aware that the tax will be calculated based on the pre-accident value of your old car, not the new car you buy. If the insurance company values your old car at $10,000 and you purchase a new car for $20,000, the tax reimbursement will be calculated on the $10,000.

4. You may be entitled to a diminished value claim in some states

Diminished value is based on the idea that any car that has been in an accident, regardless of how well the repairs are done, is worth less than the exact same car that hasn't been in an accident.

But for first-party claims, meaning accidents where you're making a claim on your own insurance policy, you are unlikely to be entitled to diminished value reimbursement. That's because the Insurance Services Office (ISO), which provides insurance forms and data, authored policy language that insurers can now use in 45 states and Washington, D.C., that officially takes them off the hook for diminished value payments in physical-damage coverage claims.

The ISO's exclusion for diminished value has not been approved in Georgia, Hawaii, Kansas or Maryland. Massachusetts has not adopted ISO policy language, but a May 2002 "advisory opinion" from the department of insurance states that diminished value is not covered under collision policies in the state. (Hawaii and Massachusetts are both under independent insurance bureaus.)

What you can do: There's one way you may be entitled to a diminished value claim: If someone else hits you and you make a damage claim on that person's insurance. That's called a third-party claim and it's possible to get diminished value damages as a third party because you don't have a contract with that insurer. The ISO's diminished-value exclusion form applies only to first-party physical-damage claims, not to third-party liability claims.

Also, in tort claims, the measure of damage is generally calculated as the difference in value before and after the loss, sometimes making diminished value a viable claim. However, there is still a wide variation among state case law in pinpointing when a third-party claimant is entitled to diminished value. For more, read Diminished value payments when your car has been in a wreck.

5. You may be able to "stack" your coverage

Stacking uninsured/underinsured motorist coverages means you can collect payment more than once within the same auto policy or among two auto policies. There are two scenarios for stacking: First, if you have multiple cars on your policy with UM/UIM coverage on each, you can collect the limit of your UM/UIM coverage under as many vehicles as necessary to cover full payment for damages. Second, if you have more than one policy with UM/UIM coverage, even if they're from two different insurers, you can make a claim under each policy until all your damages are recovered.

What you can do: You'll have to check the language of your policy to see if it's allowed. In some states, such as Pennsylvania, you'll be able to choose stacked or unstacked coverage when you buy your policy (stacked coverage will cost more because you'll have the right to more coverage).

6. Making a claim could increase your car insurance rates, but by how much?

When an insurance company decides to raise your premiums because you make a claim, it doesn't follow any hard and fast rules; many factors are involved. That's why you might find yourself getting double- or triple-whammied by your individual circumstances. For example, if you make a claim and have a birthday before renewal time, your birthday might bump you into a higher risk category along with the claim, shooting your rate through the roof.

Remember, too, that circumstances can work in your favor at times. If you turn 40 and enter a lower-risk category, or if you buy a car that's less expensive to insure, your savings might help offset any increase due to an accident.

Many auto insurance companies follow the Insurance Services Office's (ISO) standard of increasing a premium by 20 to 40 percent of the insurer's base rate (not your current rate) after your first at-fault accident. A base rate is the average amount of claims paid plus the insurance company's claims-processing fee. According to the ISO, for multicar policies the surcharge is 20 percent of the base rate, and for single-car policies it is 40 percent. For more, read How much can your rates go up after one accident?

What you can do: Some insurance companies have "accident forgiveness" guidelines, but the qualifying variables can be wide-ranging. You should ask when you buy or renew your policy if there is accident forgiveness and how to qualify.

7. If you don't drive much, "usage-based" car insurance could save you money

"Usage-based" car insurance allows you to buy coverage based on how much you actually drive. If you're reducing your driving based on gas prices or other factors, usage-based insurance could be a good match for your reduced insurance needs. Progressive pioneered this type of insurance in 1998 when it began testing usage-based coverage in Texas.

Progressive plans to roll out its MyRate program nationwide in 2008 and 2009, pending state approvals. Customers who opt for MyRate coverage will plug a wireless device into a port in their cars that will measure mileage.

After the device is installed, your premium goes up or down at renewal time based on how much you've driven. Progressive says the rate change could be anywhere from a 60 percent discount to a 9 percent surcharge. In some states, you might also pay a technology expense for the cost of the device and data transmission.

Even if your car insurer doesn't offer usage-based coverage, it may have "low-mileage discounts," so if you've reduced or eliminated your commute to work you may garner a reduced premium.

8. Your credit history may affect your car insurance premium

Auto insurers believe that your credit score is an indicator of whether you are going to make a claim, and price your insurance policy accordingly. A July 2007 report from the FTC confirmed a correlation between one's insurance score and the likelihood of filing a future insurance claim. Read the FTC's report on "Credit-based Insurance Scores: Impacts on Consumers of Automobile Insurance."

Auto and home insurers also make ample use of "insurance risk scores," which are similar to credit scores but weigh credit factors differently. Not all states are keen on insurance scoring as a factor in pricing car insurance policies. To see what your state says, see State laws on insurer use of credit information.

What you can do: You can buy your own auto or home insurance score report through ChoiceTrust, which is operated by ChoicePoint, a provider of consumer insurance scores and other data to insurance companies.

9. You must officially cancel your insurance policy when you switch insurers

Most auto insurance companies state in your policy that you can cancel your coverage at any time by notifying the company in writing of the date of termination. However, most consumers assume that if they decide to terminate the policy at the end of the coverage period, all they have to do is ignore the bill. The insurance companies don't see it that way. They will send you another bill for the next premium payment, and when you don't pay it, the company will cancel you for nonpayment, which goes on your credit record.

What you can do: Call your insurance agent or the company and let them know you are canceling your policy. Be sure to give them a specific date, or you may end up uninsured for a period of time. The company will then send you a cancellation request. Most often, the form is already filled out and all it requires is your signature. Make sure you read it to check for errors.

You may also have to prove to your former insurance company that you have new coverage, and if you've financed a car through a dealership, the dealer will need to know your new policy information, since purchase contracts often require proof of insurance coverage.

10. You can wait to add your teenager to your policy until he or she is licensed

In most cases, insurance companies don't require you to add your teenager to your policy until the teen has his or her driver's license. The exception may be if you are in a high-risk insurance pool; you may then have to add your child when they receive their permit.

What you can do: If you forget to tell your insurance company that you have a licensed teen and you have to file a claim for them after an accident, they will still be covered, but your insurance company is entitled to then charge you back premiums from the date your teen received a license.

You are not required to add your teenager to your policy just because he or she has reached driving age.

11. Paying in installments will usually increase your overall bill


"Fractional premium" fees are usually charged when you divide your annual premium payment into installments rather than pay for a year of coverage all at once. Payments are usually offered on a six-month, quarterly, or monthly basis, but almost every insurance company charges an administrative fee for breaking up the payments. It can be as little as a few dollars per payment, but the more you break it down, the more it adds up.

What you can do: Be sure to ask up front when you apply for the policy what the fees are for paying in installments. If the fees are small enough, it may be worth it. However, remember that insurance companies can cancel your policy for late payment if you forget one of your installments. If you can pay the premium annually, it will simplify the process and save you a few dollars.

12. Your car model affects your premium, but by how much?

Auto insurers have a premium-rating system for every car model, usually based on "Vehicle Series Ratings" (VSRs) received from the Insurance Services Office (ISO). This rating indicates how comparatively expensive your vehicle should be to insure. The ISO describes the ratings this way: "VSR captures differences caused by factors such as attractiveness to theft and susceptibility to damage. It's unlikely that a $30,000 minivan would generate the same amount of theft losses as a $30,000 sports car or that the vehicle damage sustained in an accident would be the same for a $40,000 luxury car with a fiberglass-based body as for a $40,000 sport utility vehicle."

What you can do: If you are buying a new car, contact your insurance company and ask about the premium difference among the cars you are considering.

In a Conning and Co. study completed in July 2001, about 92 percent of insurers reported using scoring, including credit data, in deciding auto insurance policy premiums.

Since 1998, the use of such scoring has expanded greatly, according to Conning and Co., with insurers saying that they responded to scoring initiatives taken by the competition.

More than half of the insurers surveyed say they use the scores to place you in a rate class (like preferred, standard, or high-risk) and to set a price for you within that class. Nearly all say they use it for new business only, according to the study.

Supporters of scoring say there is a direct correlation between your score and the likelihood that you'll make a claim, but critics maintain that it permits insurers to charge higher premiums to lower income households.

What the insurance industry calls "credit scores" are actually "insurance risk scores." Both scores are based on information contained in your full credit report, but they put weight on different factors in order to calculate a final score. Thus, even if you purchase your credit score from one of the major credit-reporting agencies, you still don't know your "insurance risk score," which is not available to you.

According to Craig Watts of Fair, Isaac & Co., a provider of scores, a regular credit score weights data in order to evaluate your use of money. But insurance scores give weight to data in order to evaluate your stability. So, if you've paid your bills in a timely manner and you've had accounts open for a long time, you would be considered more "stable" than someone who has been delinquent and opens and closes accounts frequently. Credit scores and insurance scores generally move in the same direction as your credit history changes (meaning move up or down), but there could be cases where you have credit activity that impacts one score more than the other.

If you have some unusual activity within the month before you buy auto insurance, your insurance score could be downgraded. Insurers may then consider you a bad risk (where allowed by law) and refuse to sell you a policy, or charge you a higher premium for a policy. However, if you decrease your credit activity and wait a month to purchase your insurance, you could help your chances. Remember that there are many factors that insurers use when evaluating you as an auto or home insurance customer, including your driving record (for auto insurance only), your personal claims history, and where you live.

ChoicePoint and ISO
ChoicePoint, with the help of a Fair, Isaac and Co. scoring formula, and the Insurance Services Office (ISO) offer insurers extensive nationwide resources that contain your name, address, phone number, credit report, claims history, and motor vehicle report — and that just scratches the surface. ChoicePoint also compiles aliases, criminal records, and histories of vehicles. "If you've got a car that's been in 35 accidents, that's something the insurance company is going to want to know," says Mark Wheeler, spokesperson for ChoicePoint.

ChoicePoint, which is an offshoot of the Equifax credit-reporting company, maintains a database called CLUE (Comprehensive Loss Underwriting Exchange). The company uses the information it gathers and maintains for "casualty loss" scoring, claims history reporting, and driving-record reporting. When a consumer fills out a new car insurance application, the potential insurer queries ChoicePoint for an insurance score. ChoicePoint caters to nearly all property and casualty insurers.

The ISO says the databases it maintains, called the All Claims databases, are strictly for detecting fraud and expediting the claims process. If the ISO sees a series of claims that looks suspicious — for example, the same name appears on all the claims with a different social security number — the company will notify the insurance company and the insurer will investigate. The ISO also has information about any of your claims that might have ended up in court.

Some insurers have their own "scores"
After investigation, State Farm — the country's largest auto insurer — decided to use "prior loss history and certain credit characteristics" to create a model that helps it determine an underwriting score for a policyholder applying for a homeowners or auto policy.

State Farm says, "It is significant that we are combining credit characteristics and prior claims history for these models and that we have developed the models using our own book of business. Our models are not designed to assess wealth, income, or creditworthiness, but focuses on the prediction of future insurance losses."

State Farm adds that it believes the "use of this model will lessen the extent to which those who represent higher potential risk are subsidized by those who represent lower potential risk."

Checking your records

Most of the information that insurance companies collect and use for rating purposes is available from government agencies and credit-reporting companies. For example, you can get a copy of your motor vehicle report from your state's department of motor vehicles, and you can get your credit history from Equifax, Experian, or TransUnion.

You can get a copy of the ChoicePoint CLUE report by calling ChoicePoint's Consumer Disclosure Center at (770) 752-6000. The report will cost between $8 and $10, depending on how the consumer wants the information, says Wheeler of ChoicePoint.

You can acquire a copy of the ISO All Claims report if you dispute the information it contains. The ISO Auto Property Loss Underwriting Service (A-Plus) report provides insurance underwriters with the means to independently investigate and evaluate potential risks. Consumers can call (800) 709-8842 to obtain copy of their report. A "request for disclosure" form must be completed.

Auto insurance protects you, and others, from financial ruin in the event of an auto accident. It also comes to the rescue if your car is vandalized, catches on fire or is stolen.

And beyond protecting you financially, auto insurance is a social responsibility. Those who drive without insurance, and without the ability to pay for damages they cause, put the rest of us at great financial risk.

That's why all states (except New Hampshire and Wisconsin) require drivers to carry liability insurance. And even in New Hampshire and Wisconsin, if you choose not to carry insurance you must show that you have enough assets to pay for damages in the event of an accident. A basic auto insurance policy contains six types of coverage. Depending on where you live, some coverages are required and some are optional. (See Mimimum levels of required auto insurance for details.)

Auto insurance is comprised of:

1. Bodily injury liability
2. Property damage liability
3. Medical payments or Personal Injury Protection (PIP)
4. Collision
5. Comprehensive
6. Uninsured/Underinsured motorists coverage

Liability insurance

Liability lingo

Liability coverage limits (that's for the damage you do to others) are written as three numbers, such as 20/40/10. That translates to $20,000 in bodily injury coverage per person, $40,000 in bodily injury coverage per accident and $10,000 in property-damage coverage per accident.

Liability coverage is essential. States require certain levels of minimum liability insurance because that's the coverage that pays for damage you do to others, including bodily injury and property damage. It also pays for your legal bills if you cause an accident.

Bodily-injury coverage includes medical bills and lost wages; property-damage coverage pays to repair or replace property you destroy, such as other cars or property you run into, such as fences. It can also pay for "pain and suffering" damages if someone sues you after a car accident — but only up to your liability limits.

Remember, your responsibility doesn't end at your liability limits. If you cause $65,000 worth of damage and have an insurance limit of $40,000, you're personally on the hook for the remaining $25,000 and could be sued for it. The Insurance Information Institute (III) recommends you carry $100,000 of bodily injury protection per person and $300,000 per accident.

Collision & comprehensive: Up to you

Neither collision nor comprehensive coverage is required by any state. However, the lender for your car loan may require that you carry these coverages at certain levels.

Collision and comprehensive coverages

If you cause a car accident, the collision portion of your policy pays to repair your own vehicle. Your car is considered "totalled" when the repair costs exceed a certain threshold of the car's value, such as 70 percent. At that point, the insurance company will tow away the car to the salvage yard and offer you the actual cash value of your car. For more, read Total warfare: What to do when your insurer totals your car.

To keep your premium costs down when you buy collision coverage, you can raise your deductible to $1,000 or $2,500, but remember you'll have to pay that amount out of pocket before any coverage kicks in.

Comprehensive coverage pays for damages to your car that aren't due to car accidents: Theft, fire, vandalism, natural disasters and hitting a deer are included. Also, your glass coverage comes under the comprehensive portion of your policy. If your windshield cracks, comprehensive coverage saves the day. As with collision coverage, there is a deductible for any comprehensive coverage claim.

Medical payments, PIP and no-fault

Medical payments (called MedPay) coverage pays for the medical expenses of you and your passengers after an accident. This includes accidents while you're driving your car, while you're driving someone else's car (with their permission), or injuries to you or your family members while you're pedestrians. MedPay will pay no matter who caused the accident, although if someone else is at fault your insurer may subrogate against them, meaning it will seek damages from the other party.

Personal Injury Protection (PIP) coverage pays for medical expenses and lost wages for you and your passengers who are injured in an accident. It also covers funeral costs. PIP is required in 16 states. Do you need it? If you have good health insurance and disability insurance, you can skip PIP or buy only the minimum amount if it's required.

Uninsured/underinsured motorists coverages

States that require PIP coverage

Arkansas
Delaware
Florida
Hawaii
Kansas
Kentucky
Maryland
Massachusetts
Michigan
Minnesota
New Jersey
New York
North Dakota
Oregon
Pennsylvania
Utah

Source: Insurance Information Institute

Uninsured motorists (UM) coverage pays for medical bills if you're struck by someone who is uninsured or if you're a victim of a hit-and-rum driver. UM is required in many states.

Similarly, underinsured motorists (UIM) coverage kicks in when someone causes an accident but doesn't have enough insurance to cover all the medical bills. In that case, the at-fault person's insurance pays out to its maximum and then your UIM coverage pays for the remaining bills, up to your own limit. UIM coverage is required only in Connecticut, Maine, Minnesota and Vermont, according to III.

UM and UIM coverage also cover pain and suffering claims and, in some states, also cover property damage.

The extras

These may seem like little luxuries, especially when you're adding up your premium bill, but in the event of an accident these additional coverages can save you a bundle.

* Rental reimbursement pays for a rental car when your vehicle is damaged or stolen. Check for the per-day dollar limits and overall maximum to make sure you're getting a good value for your premium dollar.
* Towing and labor coverage pays for fees due to road breakdowns.
* Gap coverage for a new vehicle pays the difference between the actual cash value of the vehicle and the amount left on your car loan if your vehicle is totaled.

How to buy

There are several ways to track down the least expensive auto policies, including online rate quotes and local independent agents, both of which will give you rate quotes from several companies to compare. If you have an accident, you want to know that your auto insurer will have great customer service and make the claim process easy and fair. For that, the recommendations of friends and family, especially those who have made claims, can be invaluable.

WORLD SCENARIO

In the developed world, insurance broking came into existence about twelve decades back. From being a matchmaker between insurance companies and business firms earlier, the scope of the broker has expanded to providing various value-added services.



Apart from structuring and placement of insurance cover, these include claims management, risk management, alternative risk transfer mechanisms, employee-benefit solutions, captive management, actuarial services, HR outsourcing, political and environment risk advice, pre-emergency planning and evacuation, business continuity planning etc.



The Broking concept is so well established in the Western markets that close to 80-90% of all corporate/ commercial insurance business is transacted through Brokers and not directly between Insurers and Clients.



Indian Scenario
India has been a rather late starter. The IRDA brought out its first set of regulations, permitting Brokers to operate, as recently as October 2002. The first set of Licenses was issued only in Jan 2003 (India Insure being the first to have been granted the License).



In India, Brokers are different from other Insurance service providers in several ways.




Unlike an Agent (or a corporate agent), who represents a specific Insurer only,


A Broker REPRESENTS THE CLIENT, and not the insurer.


He can approach all Insurers for a competitive quote.


A Bancassurance outfit (commercial banks), is normally an Agent and not a broker.


A Third Party Administrator (TPA; sometimes confused with a Broker) is a service provider for Insurance companies, providing services related to health insurance only.


IRDA has permitted 3 types of Brokers to operate in India:



The Direct Broker (between end-users and primary insurers only),


Re-insurance Brokers (between primary insurers and re-insurers only) and


He can approach all Insurers for a competitive quote.


Composite Brokers (both the above).


Brokers are highly regulated. Apart from a minimum paid-up capital of Rs 50 Lacs – Rs 250 Lacs (based on the type of License), Brokers need to be have fully trained staff and proper infrastructure.



IRDA has licensed more than 250 brokers over the last 4+ years. While most are regional players with either a local or regional presence only, there are some who have a national footprint.


Why do you need Insurance Brokers?

Brokers represent the client, not the insurer
Brokers have expertise, knowledge of market and negotiating skills
Brokers are accountable to clients for professional negligence


Brokers are technically competent to evaluate insurance companies on the basis of coverage, services and price and thus ensure healthy competition


Brokers are more aware of national and international markets


Broker’s domain knowledge is useful to study the survey reports, determine / question lapses


Brokers assist in speedy and fair settlement of claims


Brokers are the most stable insurance distribution channel


Brokers normally have higher bargaining power – leading to significant Cost Savings for clients


Brokers are able to get a better deal in hard markets.


Brokers can structure specialized insurance programs – policy limits, minimizing deductibles and optimizing coverage terms


Brokers help you get the best terms and service from your insurer – shifting from your existing insurer is not necessary.


Brokers help you evaluate the ‘terms’ and ‘service’ you are enjoying today vis-à-vis the ‘best’ available in today’s competitive market – take advantage of competition.


Brokers help you see all the faces of a cube and choose the best for yourself - even the ‘best’ insurer can present only 1 face of the cube – his own.


Brokers provide several Other Services like Policy Audit, improvement in coverages, expert handling of claims, day-to-day policy administration, etc.,


Outsourcing to professionals frees up mind space and makes the in-house team available for other more productive activities

If you've curtailed your driving to save on gas, the insurance industry has plans for you to save money on your car insurance, too.
Car insurers have long offered low-mileage discounts based on your commuting distance to work and/or annual mileage. Now they're considering ways for you to pay for car insurance based on exactly how much you drive. It's called usage-based car insurance, also known as "pay as you drive" or PAYD. A device in your car tracks your actual mileage and come renewal time your rate is partly calculated on your usage — and potentially even your driving habits and aggressiveness on the road.
The rocky road to
pay-as-you-drive insurance

There are three main hurdles to changing the face of car insurance to pay-as-you-drive, according to insurers:
Technology

First, technology must support the idea. A device to track driving is needed and devices vary among insurance companies. It must send the data without drivers being inconvenienced by sending it themselves.
Privacy

Second, drivers must be willing to be "observed" by their insurers via the data stream. Privacy remains a big question mark for consumer acceptance of pay-as-you-drive insurance. However, so far drivers have shown willingness to sacrifice privacy in exchange for saving money.
State regulations

Third, state regulators must approve the new programs and rates. "In some states it's an education process," says Hutchinson of Progressive. "It raises a lot of questions."

Some insurers have been working toward this moment for years. Progressive, for example, has been testing and refining usage-based programs since a 1999 Texas test. "We put our toe in the water," says Richard Hutchinson, General Manager of Progressive's MyRate program, the newest incarnation of Progressive's pay-as-you-drive insurance program.

With MyRate, Progressive is going full throttle into usage-based insurance. The program is currently available in Alabama, Michigan, Minnesota, New Jersey and Oregon. The company plans to offer it in four more states by the end of the year and nationwide by the end of 2009.

Here's how it works: A device that plugs in under your steering column collects data on your mileage, when you drive, how often you drive and how you drive. Data is sent automatically to Progressive from the device via a cellular connection. Conventional factors such as your age, location, vehicle and driving record are still used in addition to usage in setting your car insurance premium.

"This empowers you to control your insurance costs," says Hutchinson. Savings can go as deep as a 60 percent discount on the liability and property-damage portion of your insurance bill (that's if you're sitting at home most days). However, it could also backfire: Someone who logs a lot of miles, or who drives like a crazy person, or who drives a lot after midnight (a high accident-rate time), could see a 9 percent surcharge.

David Snyder, Vice President of the American Insurance Association, an industry trade group, notes that insurers have long based rates partly on miles driven, but one driver's miles can be very different from another's in terms of risk exposure. For example, 10 miles driven on a back road at midnight carry far more risk than 10 miles driven on the highway on a sunny day. Tracking devices pinpoint some of this risk.

Road ragers need not apply. Sudden braking and acceleration, such as accelerating more than 7 mph in one second, boosts your insurance rate under Progressive's program. Even if you drive in a relatively calm manner, you may simply not like the feeling that every time you slam on the brakes or go for a midnight ice cream run, your car insurance rate is creeping upward.

"People have different views on whether it's an invasion of privacy," says Loretta Worters of the Insurance Information Institute (III). "But people are willing to do it for the rate reduction."

The savings range will depend on your state. For example, Progressive's Alabama customers can see discounts of 40 to 0 percent, with no surcharge range, and have a "technology expense" of $5 a month.

Computing car insurance premiums to take into account how much you drive, when you drive and how you drive gets complicated. According to the 2008 rating manual filed by Progressive with the Alabama department of insurance, MyRate customers can fall into one of over 400 "usage-based insurance groups" depending on their driving habits. To be eligible for discounts, drivers must fall into one of the first 75 groups.

Recipe for savings

How to whittle down your car insurance cost:

Usage-based car insurance
+
Limited driving
+
A minivan
+
The highest deductibles you can afford
+
All the discounts to which you're entitled

Progressive customers can check their "Trip Details Log" driving profile online, sort trips by date and type of trip, and see their anticipated future discount. They can also drop out of the MyRate program any time and return to a standard policy if they don't like their expected new rate.

"You have to pay some attention because you could end up in a higher position," explains Hutchinson. "People are reducing their mileage and this fits nicely. It's a good idea for some drivers out there. We're not trying to shove it at them." In addition, you can choose MyRate for one vehicle in your house but not the others. If you have a car that sits in the garage most of the time, MyRate would garner you large discounts.

Progressive holds three patents related to its usage-based system.

While Progressive is first out of the gate in implementation of usage-based car insurance, there's a pack forming at the starting line. But some competitors may have an entirely different idea about how to run this race. Here's what some of the nation's other auto insurers are willing to admit about their plans.

Allstate spokesperson Raleigh Floyd says that in the company's various tests of usage-based insurance, "Our focus is the driver, not the miles driven. When it's all fully baked, we hope to make drivers smarter about their own habits and make that an incentive rather than the mileage."

Allstate is in the early stages of testing multiple devices, including a GPS box that monitors traffic and works with other "smart devices" to prevent accidents. Speed data is another testing element. Allstate is looking at what information drivers appreciate and what they don't. "It may be too intrusive to hear, 'You took that turn too fast!'" says Floyd. Some devices in the test tell drivers when they're driving at optimal fuel-efficiency. "We're testing what people would prefer and based on results we'll land with something we want to go broader with." Volunteers for the testing do not pay usage-based rates.

"We have no idea where this is going to go."
— Raleigh Floyd, spokesperson for Allstate

Allstate won't speculate on a launch date — or even divulge when testing began — but "it feels like what's next," says Floyd. "It's true innovation for us. Customers are telling us what works and what doesn't. They will have a huge say in what makes it to market. We have no idea where this is going to go."

A spokesperson for Erie Insurance, which recently earned the No. 1 spot in auto insurance customer satisfaction in J.D. Power and Associates' 2008 rankings, says the company is in the "exploratory phase" of usage-based insurance. In a test with 500 volunteers in Pennsylvania and Ohio, Erie is tracking speed, mileage, and acceleration and braking. Results do not affect premiums of the volunteers.

A GEICO spokesperson says only that the company "continually evaluates factors that influence loss propensity such as miles driven in order to be able to offer the lowest possible prices to our customers."

GMAC Insurance is using GM's OnStar system to track mileage and offer low-mileage discounts. Drivers must have a subscription to OnStar in order to participate.

The Hartford has completed a six-month usage-based test using policyholder volunteers in Connecticut. GPS devices were used to track mileage and other data. The Hartford is now analyzing the results. "We're aware of the advances that have been made in this space," says Michael Concannon, Senior Vice President of Personal Lines Insurance, adding that, "We have not seen a cry out for usage-based rating."

A State Farm spokesperson says the company is testing on a small scale in Oregon to determine the feasibility of usage-based insurance. Customers in the test have devices installed that track only speed and are not paying usage-based rates.

AIG and Nationwide spokespeople say their companies don't offer usage-based programs.

Benefits beyond insurance rates

Drivers participating in pay-as-you-drive car insurance have hit upon other advantages to the programs. Worters of III observes that parents use the "black boxes" to track teens' driving habits and speeding.

"If your current mileage does not change but all other vehicles reduced their mileage by 10 percent, you could expect a 7 percent reduction in crash risk."
— Todd Litman, Victoria Transport Policy Institute

If pay-as-you-drive car insurance takes hold and drivers everywhere trim mileage in order to save money, it will ultimately benefit everyone. According to a 2005 report titled "Pay-As-You-Drive Pricing and Regulatory Objectives," by Todd Litman of the Victoria Transport Policy Institute, "Reductions in total vehicle travel may provide proportionally larger reductions in total crash costs, since about 70 percent of crashes involve multiple vehicles, and the average crash results in about 1.5 claims. . . . If your current mileage does not change but all other vehicles reduced their mileage by 10 percent, you could expect a 7 percent reduction in crash risk, since 70 percent of your crashes involve other vehicles. If you and all other vehicles reduce mileage by 10 percent, you could expect a 17 percent reduction in total crashes." adultpicturess.blogspot.com

A June 2008 pay-as-you-drive report by Litman also states that the programs can result in pollution and emissions reductions: "If applied to all vehicles it will achieve approximately a third of the Kyoto emission reduction targets for private vehicles."

It's an attractive proposition. "Some states have asked if we'd launch in their state," says Hutchinson, particularly states concerned with miles traveled and greenhouse gases.

"More and more, acceptance is climbing," observes Hutchinson. "People view insurance as part of overall transportation costs and they're looking for relief."