pay-as-you-go insurance is on the up as economy is down

As job growth stalls and household budgets shrink, more drivers are warming up to cost-cutting "pay-as-you-go" car insurance programs where in the USA  it's possible to save up to 30 percent on car insurance rates.

Car insurance companies in USA respond to demand

Two of the nation's biggest insurers are now responding to this growing demand for pay-as-you-go coverage. 

A few weeks ago, State Farm – the country's largest insurer – announced plans to introduce a new telematics-based effort dubbed In-Drive to drivers in Illinois. Additional states are slated to receive In-Drive in 2012.

Allstate – the nation's third-largest insurer – also recently expanded its Drive Wise pay-as-you-go program to Ohio and Arizona after an earlier rollout in Illinois.

It's no coincidence that pay-as-you-go insurance is on the upswing at a time when the economy is in a downward spiral, according to Robert Passmore, spokesperson for the Property Casualty Insurers Association of America (PCI).

"A lot of companies are offering it, and a lot of people are driving less and looking for ways to save money," he says.

Initially, privacy advocates raised concerns about these devices and their ability to snoop on drivers. But the success of programs such as Progressive's Snapshot and a GMAC Insurance program based on OnStar technology apparently has convinced more insurers that pay-as-you-go insurance is the wave of the future.

"It's really about rewarding those better, safer drivers, and the technology is now in place to do that," says Dan Kraft, Allstate director of new products and service development accountability.

Lori Conarton, a spokesperson for the Insurance Institute of Michigan, says pay-as-you-go programs make sense at a time when people are looking for cheap car insurance in an increasingly frugal America.

"The whole idea of paying only for the coverage you actually use is attractive to consumers," says Conarton..

She also  says drivers today like the idea of having their insurance costs "tied more directly to their individual behavior" instead of watching passively as their rates are determined by an insurer's risk profile.

The future of pay-as-you-go car insurance

Although pay-as-you-go insurance is just now catching on, advocates have been pushing it for years as a way to both save customers money and to achieve other social benefits, such as reducing traffic fatalities and cutting back on pollutants that contribute to global warming. 

A 2008 study by the Brookings Institution noted that, "Just as an all-you-can-eat restaurant encourages more eat­ing, all-you-can-drive insurance pricing encourages more driving. That means more accidents, congestion, carbon emissions, local pollution, and dependence on oil."

Kraft believes drivers who choose pay-as-you-go automobile insurance coverage to save a buck during hard times will stick with the program long after the economy heals itself. And Passmore still sees room for the trend to grow.

"If people like it and perceive it as a value and save money, why not?" Passmore asks.

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