Progressive Insurance Corp. introduced a pilot program in Texas in 1998 to determine whether or not auto insurance premiums could be calculated on a pay-as-you-drive basis. The insurer has concluded that pay-as-you-drive auto insurance policies are indeed feasible. Now, Progressive is in the process of coming up with a workable system for rolling out the policies nationwide.

Exactly when Progressive comes up with that system is another question altogether. Leslie Kolleda, a spokesperson for Progressive, says that pay-as-you-drive car insurance from Progressive will spread into states other than Texas, but her company currently has no plan of attack. "We have no idea when we're going to do it. We have no plan right now," she says.

How pay-as-you-drive works

Progressive tracks with a Global Positioning System (GPS) how much you drive (in miles and minutes), the time at which you drive, and the areas in which you drive in order to calculate your insurance premium. At the end of each month, a cellular phone (which is also part of the bargain) reports to Progressive your driving patterns.

Progressive recently received a patent on its Autograph pay-as-you-drive insurance rating system from the U.S. patent office, signaling that it is poised to begin offering the policies to consumers in many states. Currently, Progressive has discontinued selling new Autograph policies in Texas because the pilot program ended, but it is still servicing existing policies, which Kolleda estimates number in the hundreds.

Progressive piloted the Autograph policy in Texas through Progressive County Mutual Insurance Co. partly because there is almost no regulation of the insurance rates charged by county mutuals in Texas — and the state is loaded with county mutuals. "Even if we saw something we didn't like in their rating, we probably couldn't do anything about it," admits Lee Jones, a spokesperson for the Texas Department of Insurance.

County mutual insurance companies do not have to follow the insurance department's rules when it comes to charging their premiums because historically they sold insurance to consumers that no other insurance company would sell to — high-risk and rural policyholders, for example. As a result, in 1951, the Texas Legislature allowed county mutuals to continue selling without rate regulation. Although challenges to the county mutual format have cropped up from time to time, insurer interests in the Texas Legislature have quashed attempts to reform the system.

However, the Texas Department of Insurance did not find anything suspect in the way Progressive charged its Autograph premiums. According to Kolleda, the department loved the idea of a pay-as-you-drive insurance policy. Kolleda says that other state insurance departments with whom Progressive has discussed its Autograph policies have indicated they would approve the policies, but nothing has yet been formalized.

Snafus

Progressive wants to clear any hurdles that might block the success of the Autograph policies before it begins selling them in other states, says Kolleda. One of the hang-ups Progressive faces in launching Autograph nationwide is a dearth of necessary hardware in cars. Autograph policies require policyholders to install a GPS, a cellular phone, and a vehicle crash-data recorder for their cars. As advanced as autos are, those three items do not come standard on all hot-off-the-assembly-line vehicles. Progressive is looking to partner with an auto manufacturer, such as General Motors, that could put those devices in vehicles because Kolleda notes the installation of the devices was inconvenient for the policyholders in Texas.

What's more, Progressive initially paid for the equipment and the installment of the devices for the Texas policyholders, so finding an auto manufacturer that installs the equipment at the factory will save money for the insurer. Kolleda could not say whether future policyholders would have to purchase their own GPS and cellular phone.

The cost of giving up privacy

According to Progressive's rate filings with the Texas Department of Insurance, each Autograph policyholder is charged a $65 start-up fee that is nonrefundable. In addition, Kolleda says that Texas policyholders were charged a $5 monthly fee for the GPS, cellular phone, and crash-data recorder.

Kolleda notes that Progressive received one complaint about its Autograph policies in Texas. A policyholder was concerned that when he received his monthly bill, Progressive was incorrectly counting the number of minutes he had driven and thus overcharging him. What the policyholder did not know was that Progressive rounds the number of minutes policyholders drive to the nearest number. For example, 5.58 minutes of driving would be rounded to 5.6. Kolleda says the complaint was resolved without dispute.

Kolleda says that while many Texas policyholders raved about the premium savings — an average of 25 percent over "traditional" insurance policies — the Autograph policy was not without its detractors. Privacy advocates have crowed that policyholders could be vulnerable to litigation or law-enforcement penalties if records of their driving patterns fall into the wrong hands. Progressive has vowed to not let its policyholders' driving data out the door.

What's more, Progressive has not discontinued selling its "traditional" auto insurance policies, forcing consumers to purchase a policy that would make them uncomfortable. "There are certainly people with privacy concerns," Kolleda says. "This policy is not for those people."