TDI Proposes Mile-Based Auto Insurance Rules

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In late December 2001, the Texas Department of Insurance proposed rules that would allow auto insurers to voluntarily offer mile-based insurance rates to those consumers who drive less often than others.

The proposed rules, published in the Dec. 21 edition of the Texas Register, would implement House Bill 45, which was sponsored in the 2001 Legislature by Representative Ruth Jones McClendon of San Antonio and Senator Eliot Shapleigh of El Paso and supported by the National Organization for Women (NOW). A hearing on the rules will take place at 9:30 am Jan. 22 in Room 100 of the William P. Hobby Jr. State Office Building, 333 Guadalupe, Austin.

House Bill 45 and TDI’s proposals would allow carriers to set up a pilot project to test mile-based auto insurance rating as a feasible way for some drivers to reduce their premiums, but neither the bill nor the rules would actually require companies to sell mile-based coverage. The rating option will expire Sept. 1, 2005, unless the Legislature extends the date.

Insurance Commissioner Jose Montemayor noted, “TDI has received many expressions of consumer interest in this concept of mile-based insurance…Once rules are in place, it will be up to the market to determine if this is a viable way to insure automobiles.”

Specifically, the rules would authorize carriers to offer mile-based rating through an endorsement to the standard auto policy, which provides coverage for six or 12-month periods. The endorsement would let drivers buy coverage for 3,000 miles based on odometer readings or other verification methods. This sort of coverage would have both an expiration date and a specified number of miles for which it would be in force. Mile-based policies would be valid during the period noted on their declarations pages, and coverage would be in effect within the mileage specified for each automobile.

The rules also state that insurers providing mile-based rate plans could check covered vehicles’ odometers or use some other means of monitoring mileage at their discretion. If coverage expires when a car exceeds the specified mileage, the policyholder could purchase more mileage during the same policy period. Carriers could also require customers to use the same rating plan—based either on time or mileage—for all vehicles covered by a policy. Under House Bill 45, drivers must have at least 1,000 mileage of coverage to meet liability insurance requirements for inspection, tilting, and registration of vehicles or for drivers’ license renewals in order to select mileage-based coverage.

Incorporating expiration dates, as well as mileage limits, preserves rights established by Texas statutes, including the law requiring 30 days’ notice to a customer prior to non-renewal of a policy.

Deborah Bell, president of Texas National Organization for Women, expressed enthusiasm for the new rules: “We thank the Legislature and governor for this opportunity to put forward an alternative way to buy car insurance that is essential to making car insurance work…We challenge the companies to try to explain why they oppose compulsory insurance.”

NOW and other proponents of mile-based insurance rates contend that fixed rates essentially equate to taxes on owning a car rather than costs for driving it. For low-income drivers, fixed rates force them to put more miles on fewer cars, so that average miles per insured vehicle drastically increase. And their insurance rates follow suit. Further, NOW argues that mile-based coverage would enable more compliance with Texas’ compulsory auto insurance laws. Because time-based policy fees are so costly, many drivers opt not to purchase insurance at all.

Dr. Patrick Butler, director of the NOW Insurance Project, pointed out that carriers would still have control over how policyholders’ vehicles would be profiled, regardless of whether their coverage were mile-based or time-based: “A company assigns the car to one of the company rate categories by profiling your zip code, car type and use, household drivers, your credit history, and other information they have access to. The choice of continuing to pay at a fixed rate or buying miles as needed is offered only after the company sets the rate.”

According to a spokesman for the Independent Insurance Agents of Texas, no major carriers have yet announced they will participate in the trial program; many have taken a wait-and-see attitude, reluctant to stake out firm positions prior to the Jan. 22 hearing.

That sentiment was echoed by Don Hanson at the southwest regional office of the National Association of Independent Insurers. Because mile-based coverage is so different from how other books are structured, Hanson said it is too early to determine how the industry will react.


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