There’s always quite a big political edge to issues surrounding the insurance industry. In the case of vehicles it comes down to two big question marks. The first is whether the insurer should focus interest on the driver; the second on whether the insurer should use price as a lever to change driver behavior. You see the first in the ongoing debates on whether premium rates should be based on the ZIP code or the driver’s credit score. You see the second in the continuing environmental debates about pay-as-you drive.

The argument is easily put. At present, the insurer creates big groups of drivers and shares out the cost of the risk between them. This means all the safer drivers subsidize all the more dangerous drivers. Obviously there are some trade-offs, but the range of premium increases for individual drivers who prove unsafe is limited by the “profit” the insurer makes from all the safer drivers. Now look around you. We are living in the middle of a technological revolution. The vehicles we now drive are full of chips and many of us carry cell phones and other technology that allows service providers to track where we are. If we wanted, all vehicles could be fitted with technology to capture how and where we drive. This information could be transmitted on a continuous basis to our insurers. Those that drive the lowest number of miles and have the fewest accidents could then pay less to insure. Everyone who breaks the speed limits and travels thousands of miles a month would pay more.

The environmentalists love this idea. Price will be used to encourage people to drive less. There will be fewer greenhouse gasses released into the atmosphere. The world will be a better place. Law-enforcement are also excited by the possibility of being able to monitor all vehicles close to the scenes of reported crimes. Just think how useful it would be to know that seconds after a bank robbery, a car drove away from that location at 100 mph and was then abandoned in an alley where a second car then left. . . and so on. A recent study by the Conservation Law Foundation looked at the relationship between mileage and insurance claims in Massachusetts. It estimates that switching to pay-as-you-drive insurance would encourage drives to use the car less, reduce CO2 emissions, and cut accident costs.

Well, if you live in California, you will be able to try it out as from February 2011 when you apply for your auto insurance quotes. If you work from home, are unemployed or retired, or just generally drive less than 19,000 miles a year, you could be in line for a discount. State Farm and the Automobile Club of Southern California will be offering you the chance to self-report your odometer readings or to have a communications device installed that saves you the trouble of that cellphone call. So use this chance with your auto insurance quotes to save the planet and save dollars. Drive less, keep the gas in the ground and have better air to breathe.