Pay-As-You-Go Car Insurance
A novel car insurance policy is allowing drivers to cut their premiums in return for giving up a bit of privacy. Saturday Early Show Consumer Correspondent Herb Weisbaum explains how pay-as-you-go car insurance works.
Rinette Seidner is being followed. Whenever she gets behind the wheel her insurance company knows exactly where she goes and when. But she doesn't mind, because she's saving so much money on her insurance.
"Overall our policy premiums are reduced about 45 percent so it's extraordinary," says Seidner.
Sign up for Progressive Insurance Corp.'s Autograph policy and you'll have special tracking equipment installed in your vehicle. It uses global positioning satellites to constantly record the car's location, direction and speed. At the end of the month the device calls in and tells the company's computer where it has been, and you'll be charged accordingly.
"It breaks it out by time of day, morning, afternoon, evening, late night and by zone," says Seidner.
Bob McMillan is the company executive who came up with the idea of pay-as-you-go insurance.
"How you use your vehicle, how much you drive and where you drive and when you drive are more relevant than things like your gender or your occupation or your marital status," says McMillan of Progressive Insurance.
Drive in the city where there's more traffic and you'll pay more per minute than if you drive in the suburbs.
The cheapest time to be on the road is during the morning commute when the accident rate is actually low.
But get behind the wheel after midnight, when you're 10 times more likely to have an accident, and you'll pay the highest rate.
And since your bill is based on actual mileage, the less you drive the more you save.
That's what sold Greg Gonzales. He has a company vehicle. So most of the time his own truck just sits at home. Putting it on the Autograph policy saves him around $1,000 a year.
"I got a lot more money to do what I want to do with it, instead of spending it on insurance," says Gonzales.
Clearly this new policy can be a money saver. But we wondered: is it worth giving up some privacy in order to get lower premium payments? Remember, in order for this system to work, the insurance company knows where your car is 24 hours a day, 7 days a week.
The Progressive customers we spoke to all told us the same thing - that the cost savings far outweigh any privacy concerns.
"Maybe if I were in some illegal business it might, but I don't plan on doing that kind of thing," says customer Bill Bradbury.
"I knew this device was going to be installed in the car and I had a choice whether to accept it or not," says Seidner.
In fact, they like having the insurance company keep track of their vehicles. If it's ever stolen, Progressive can locate the car and disable the ignition by remote control.
Right now this new policy is only available in Texas, wher about 1,100 people have signed up for it. Progressive hopes to offer in it California by the end of the year, with other states to follow.
You might be wondering why an insurance company would want to lower your premiums. Progressive says it hopes this novel policy will help them lure customers away from the competition.
By the way, the other big insurance companies say they have no plans to start offering similar coverage.