The Office of General Counsel issued the following informal opinion on November 12, 2002 representing the position of the New York State Insurance Department.
Re: Pay-As-You-Drive Automobile Insurance
1. May a New York authorized insurer issue a motor vehicle insurance policy whose premium is calculated by multiplying a per mile fee, which incorporates the rating factors (i.e., sex, marital status, age, driving history, etc.) of the policyholder, by the number of miles such policyholder drives?
2. Do any authorized insurers issue such policies in New York?
1. An answer to the inquiry requires the submission of a detailed proposal of such a policy and its rating rules for review by the Insurance Department. Without a specific proposal, only a general response may be provided. Please see the analysis below for a discussion of some pertinent New York Insurance Laws that would, in part, determine whether such a policy could be approved in New York State.
2. No. There are no authorized insurers that issue such motor vehicle insurance policies in New York.
"Pay-As-You-Drive Insurance" (also known as "Distance-Based Vehicle Insurance," "Mileage-Based Insurance," "Per-Mile Premiums" and "Insurance Variabilization") is a policy (the "Policy") of motor vehicle insurance whose premium is calculated by multiplying a per mile fee, which incorporates the rating factors (i.e., sex, marital status, age, driving history, etc.) of the policyholder, by the number of miles such policyholder drives. The number of miles the policyholder drives determines the policys premium. Thus, higher mileage produces a higher premium. In addition, higher-risk motorists will pay a greater per mile fee than lower-risk motorists because of their dissimilar rating characteristics. Finally, the method of premium payment varies among such policies; but, generally, the policyholder will pay in advance for a predetermined number of miles, and either pay more, or receive a rebate based on the number of miles driven at the policys expiration.
1. All authorized insurers must file their motor vehicle insurance rates with the Superintendent of Insurance. Since August 3, 2001, all such rates are subject to the Superintendents prior approval. N.Y. Ins. Law § 2305 (McKinney Supp. 2002). This approval is, in part, dependent upon such rates meeting the criteria of Article 23 of the New York Insurance Law, N.Y. Ins. Law §§ 2301-2351 (McKinney 2000 & Supp. 2002) ("Article 23") and its related regulations, which govern, and articulate the standards, requirements and procedures for the rates of motor vehicle insurance offered in New York by authorized insurers. In addition, generally, motor vehicle insurance policies must comply with § 3425 or § 3426 of the New York Insurance Law (McKinney 2000 & Supp. 2002), which provide the standards for the cancellation and renewal of personal and commercial lines motor vehicle insurance policies in New York.
As stated previously, the submission of additional facts, in the form of a detailed proposal, is necessary before the Department can comprehensively answer this inquiry. However, the above-mentioned statutes provide some of the regulatory rules that govern whether such a policy may be approved in New York State. For example, a "Pay-As-You-Drive Insurance Policy" may not expire automatically if the insured exceeds the predetermined mileage, but does not pay the additional premium; instead, the insurer must issue a notice of cancellation.
2. There are no authorized insurers that issue such motor vehicle insurance policies in New York.
For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.