California continues with “pay as you drive” insurance models

“Pay as you drive” insurance continues to make inroads in the state of California, according to The Los Angeles Times.

California has now seen a fourth insurer test out this unique business model. The idea is that you pay based on the miles driven. The more you drive, the greater the chance you’ll be in accident. Premiums are priced based on the risk level involved.

I love this idea, but of course, I’m an “in towner” who does very little driving. Someone who lives in the suburbs and has a substantial commute probably wouldn’t like the idea of pay as you drive insurance.

But I see this as a real sign of the times. We’re in an era when Americans are driving a lot less because of high gas prices and high unemployment. It’s only natural that the free market would respond to those trends.

The Detroit News reports the price of gas is up 35% from a year ago. As a result of that, Americans drove 15 billion miles less during the first six months of 2011 than the same period the year before, which marks the lowest level of driving activity since 2004.

We have reached the level of price resistance at the fuel pump. For 25 consecutive weeks, the amount of gas purchased has gone down. Even if you have an ultra fuel-efficient vehicle, it can still be expensive to fill up.

I think back to my first hybrid in 2000. Gas was 59 cents a gallon and it cost me $4 and change to fill up my Honda Insight! Then I go in the other day to fill up my Toyota Prius, and it was almost $30 to fill up!! But the person next to me paid $82 to put gas in their SUV!!!