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Initially thought of as an experiment, usage-based auto insurance has quickly become a mainstream product, and steadily growing in rapid force. While many companies slowly introduced usage-based insurance programs overseas and in a few US states, the landscape has quickly changed over the past year.

This “Pay-As-You-Drive” program offers drivers deep discounts, based on real-time analysis of driving habits.

ABI Research estimates that by year 2017, more than 89 million consumers will choose a usage-based program as their insurance choice. As more insurers implement national pay-as-you-go programs, usage-based insurance will take over the market. Those insurance companies unwilling to offer usage-based insurance will be faced with the challenge of securing loyal customers.

Drivers enrolled in the program save an average of a few hundred per year. However, when this program hits national status, the discounts will become much more competitive among insurers.

Premiums are typically determined according to general demographics such as car model, age, and previous claims history. Usage-based insurance determines premiums by how safely the car is driven and how often the insured actually drives.

Insurance companies typically rate consumers on factors such as the driver’s age, driving experience, gender, marital status, professional affiliations, and intrusive information like credit scores. Usage-based insurance rates the driver’s actual driving habits.

Consumers agree to the automated transmittal of real-time driving data, via a device plugged into the car’s onboard computer. These after-market devices simply plug into the same data port EPA uses to check emissions. The device records and wirelessly transmits the information back to the insurer. Information such as how fast the car is driven, rapid accelerations, decelerations, how often the brakes are used, RPMs, mileage and aggressive maneuvers are all recorded for the insurance company.

After a 30-day wait, customers can access policy information online, to see driving habits and the amount of discounts earned. This program can potentially become a self-teaching tool, helping the insured adjust hazardous driving.

After completion of the six month policy term, customers return the device and receive a final discount.

The Pros and Cons of Pay-As-You-Go

Saving money is everyone’s favorite catchphrase and usage-based insurance saves consumers a few hundred dollars a year. There are environmental benefits — less unnecessary driving will equal less emissions. There is less risk for insurance companies and big cost-savings for responsible customers

It’s even more enticing for stay-at-home types that don’t drive very often. It seems switching over to a usage-based policy just makes sense.

As good as it would seem there can be some drawbacks. Some critics argue that these plug-in monitoring devices are invasive. Additionally, how accurate are these devices? When inaccuracy is involved, drivers could pay for acts they didn’t commit.

So, pay-as-you-go usage-based auto insurance isn’t so perfect after all.

California is no stranger to tight regulation of many industries, as the state proudly enjoys its reputation as a driving force of American regulatory trends and industry standards. The latest industry targeted by the state’s legislators is that of the ‘Buy Here, Pay Here’ car dealers. They’re well-known for offering automobile financing to consumers who have less-than-perfect credit, but they’re also well-known for charging exorbitant fees and high interest rates that can actually increase the chances of late or missed payments, as well as costly and credit-killing repossessions.

Three Bills Looking to Curtail Used Vehicle Sales and Exploitative Terms

California’s two state houses of the legislature are consider three extensive bills that they claim will help to protect consumers and regulate freewheeling used car dealers throughout the state. Those bills are SB 956, AB 1447 and AB 1534, all up for debate and discussion this month. Votes on each bill could come as early as August, and the effects of those bills could be felt during the third calendar quarter of the present year.

The main goal of all three bills is to force ‘Buy Here, Pay Here’ car dealers to stop lending to consumers who are seriously unlikely to be able to repay any car loan that they make between themselves and the dealer’s own financing arm. All too often, these used car dealers strike deals with consumers whose credit goes well beyond ‘bad’ and right into the ‘very poor’ territory that involves sub-500 FICO scores and many other outstanding debts on which the consumer must pay while also making car payments.

These three bills would seek to prevent such exploitative and dangerous car loans from being made. They would accomplish this by setting a minimum ‘floor’ for credit scores and outstanding bad debt, requiring ‘Buy Here, Pay Here’ car dealers to turn away bad credit consumers who simply don’t have the means to make consistent, timely payments, and avoid the repossession of their new vehicle.

The three bills moving through the state legislature would also mandate a cap on interest rates, which can reach sky-high levels on some lots that offer dealer financing. Currently, all three bills agree on a mandated interest rate cap of 17.25 percent; that might seem high to some, but it’s just the tip of the iceberg on dealer lots that offer their own financing. Interest rates can often soar into the 20s, 30s, or even 40s, at these exploitative car lots.

Cue the Controversy: Dealers and Some Local Officials Say the Measure is Costly and Unneeded

One of the main sticking points about all three bills currently moving through California’s state legislature is that they’ll actually reduce the amount of sales tax that can be charged at these dealerships. That will directly result in less revenue for local and county governments, leading to program cuts and other harmful spending cuts that could seriously affect an already struggling local population.

It’s estimated that the total tax revenue brought in by used car dealers if these bills passed would decline from just over $460 million annually to a low of roughly $230 million per year with stiffer regulation. Local officials and used car dealers alike have joined together to openly question whether these bills will truly benefit consumers. While it might prevent credit-crunched customers from buying a vehicle they cannot afford, it might also lead to cuts in programs that aid the same customers — namely the state’s public assistance and welfare programs.

Lots of Work to Be Done to Create the ‘Perfect Bill’

Dealers who operate ‘Buy Here, Pay Here’ car lots are understandably frustrated by California’s attempt to regulate their industry. Since they finance buyers themselves, every interest rate percentage point equates to a larger profit when a vehicle is sold at one of these lots. Consumers should view their objections as a business decision, and not necessarily as a referendum on the quality of the bill itself.

Indeed, even local officials in California’s towns and cities are in favor of capping interest rates and increasing credit standards when selling a vehicle to a consumer. Many feel that it will help to eliminate high rates of black market sales and dangerous repossessions, increasing the quality of life throughout the state and increasing the reputation associated with purchasing a used car in California.

California”s unique approach to election season allows for both state legislators and ordinary citizens to call for ballot referendums on any number of issues. The state has famously debated same-sex marriage and the legalization of marijuana through these ballot measures, and now it looks to take on a far more traditional niche: car insurance. Originally announced by auto insurance agents as the 2012 Automobile Insurance Discount Act, Proposition 33 was announced by the state”s Attorney General in July and will be up for a public vote this November.

California”s Proposition 33 presents one of the biggest changes in state history in terms of auto insurance reform. The measure is primarily concerned with the use of car insurance discounts, aiming to make them more portable and fairly assigned between the state”s wealthier and more impoverished populations. The measure also looks to benefit members of California”s large and still-growing active military population.

Proposition 33: Four Basic Tenets to Ensure Discount Equality and Portability

Under current state legislation, auto insurance companies are free to offer discounts to any new or existing policyholder whose vehicles they cover. Currently, however, those discounts accrue over time as a customer maintains their loyalty to just one company. If that customer decides that they”re no longer satisfied with their coverage at that company, they have the right to switch. Their discounts, however, do not enjoy the same right. Loyalty discounts and benefits start over at the same time a customer switches their policy.

To remedy this and other disparities when looking for better or more affordable car insurance, Proposition 33 looks to make four crucial changes to the shopping and buying process. Those four changes include:

1. Ensuring that car insurance company discounts can be passed down from parents to their children when they reach driving age. Currently, discounts only apply to the primary driver assigned to an insurance policy in California. Making this discount universal would significantly lower bills.

2. Allowing military members to maintain their loyalty discounts even if they have to cancel their auto insurance policy during an overseas deployment. Currently, cancelled policies and their discounts are reset upon returning home from battle.

3. Permitting workers who have been laid off or furloughed to keep their loyalty discounts with a car insurance company for up to 18 months, even if they are unable to pay their premiums and must leave the company as a result.

4. Protecting impoverished California residents who must, for whatever reason, cease paying their car insurance premiums for a maximum of ninety days.

All four of these major changes are exclusively designed to benefit average consumers, especially those who have been hardest hit by challenging economic states in the nation”s most populous state. That”s especially remarkable given the measure”s origination within the car insurance industry itself.

Oh You, Old Friend: Proposition 33 is a Return to Better Times for Car Insurance Buyers

The tenets laid out in Proposition 33 might seem unique or cutting-edge, but they”re actually a bit old fashioned, as far as California votes are concerned. From 1996 through 2002, California residents were actually in control of their car insurance discounts in many of the same ways that Proposition 33 would enable. Those rights were overturned and eliminated in a similar kind of ballot initiative during the 2002 electoral cycle, by a narrow majority.

Since then, California”s car insurance premiums have gone nowhere but up — in many cases far faster than inflation. Combined with the state”s recently high unemployment rate and relatively high cost of living, affording car insurance has become a tricky proposition for many of the state”s residents. This measure is designed to combat those issues of affordability, promoting fairness when discounting policies and working with some of the state”s most disenfranchised groups.

An Innovative Way to Lower California Insurance Premiums

Many states actually forbid the so-called “portability” of loyalty discounts and reward programs. California”s potential elimination of these restrictions for a second time shows its commitment to highway safety and good insurance coverage for all of its citizens. And, because the measure is largely beneficial to everyday voters, it is currently expected to pass with at least a narrow majority on election day this November.

One of the major campaign promises made by Barack Obama during the 2008 electoral cycle is that he would get to work not only on resolving America”s dependence on foreign oil, but also on insisting that vehicles sold in this country are more fuel efficient. He used his victory that year, combined with a strongly Democratic congress, to push for increased fuel efficiency standards (known as the “CAFE” standards), and a bill was drafted to boost America”s average fuel economy to 55 miles per gallon by 2025. That bill is still winding its way through the halls of Capitol Hill.

On the Brink of Passage, Increased Fuel Efficiency Gets a Boost

There”s plenty of room for consumers to take a step back and reevaluate whether they truly support increased fuel economy nationwide on new vehicles sold between now and the deadline of 2025. One of the major reasons for consumers to be concerned is that the passage of such a bill would increase the average price of a vehicle by as much as $2,200 at the time it is purchased brand new. That”s a significant price hike, and many consumers might feel that this negates the savings they”ll enjoy with higher fuel efficiency standard in every car.

That”s actually not true, however, as the Congressional Budget Office estimates that the $2,200 price increase will be offset by a savings of $6,600 in fuel costs over the life of the vehicle, based on six years of ownership. That means that buyers will actually recoup their investment in just the first two years of ownership and, from that point forward, will enjoy pure savings as they pay less money for fuel on a regular basis.

Consumers Know Savings When they See it: Support for Regulatory Changes is Strong

This might seem like nitpicking, but a surprising amount of consumers are already aware of the difference in price that will be commonplace once increased fuel efficiency regulations are passed by the United States Congress. In a recent telephone poll, a whopping 75 percent of those surveyed indicated support for increased fuel efficiency regulations in American automobiles. That was without informing them of the costs.

When the interviewer changed the format of their question to include the estimated $2,200 increase in the average price of a new vehicle after the passage of such regulation, support among typical Americans did decline. But the decline was not major or precipitous; instead of the 75 percent support level enjoyed by the measure in the less specific question, Americans supported the new regulatory standards by a significant margin. A sizable 63 percent of American drivers indicated that they would support higher vehicle prices if it meant lower fuel costs for the duration of the time they owned that car.

A Change in Attitudes and an Incremental Shift in Fuel Economy Realities

Americans are typically cost-averse, preferring lower prices, no inflation, and lower taxes. But when it comes to vehicle purchases, this trend seems to be changing in an entirely different way. Americans have changed the way they view vehicle purchases themselves. When fuel was relatively cheap, Americans considered the sticker price of any vehicle to be the primary “cost factor” when choosing a new model. With higher fuel prices, it is now the reverse. Americans are choosing vehicles based on fuel mileage and the cost of ownership, rather than the cost of purchase. That means increased fuel economy standards can remain relatively popular even as prices go up.

And those prices, while expected to increase, will not go up all at once in just a few short weeks or months. The phase-in of new regulation will take roughly twelve years, allowing for slow and steady increases in both price and fuel economy. And experts allow for the possibility that new, more fuel efficient technology may go down in price more quickly than expected. That would make a price increase unnecessary, according to most industry experts.

A Rare Thing: Popular Regulation

New regulations in the auto industry, or any other industry, are typically greeted in a hostile manner by the American public. That is refreshingly not the case with higher fuel economy regulations imposed by the government. With broad support from the driving and voting public, even despite a potential vehicle price hike, these regulations look to be both easily passed and readily adopted in a relatively short period of time.

This year, at least three states, California, New York and Florida, have made changes to their auto insurance laws. These alterations were seen as necessary to combat fraud or to keep auto insurance rates from rising.

CaliforniaCalifornia made changes to its auto insurance laws that were meant to help auto insurance companies and authorities determine who was at least 51 percent at fault in a car collision. In the past, auto insurance laws prohibited insurers from presenting evidence of a driver’s actions that may have contributed to the cause of a collision. Specifically, these actions include something the driver failed to do that might have prevented the collision.

With the new regulations, auto insurance companies are no longer restricted in the evidence that they can submit to determine blame for a crash. As a result, these new regulations affect the good driver discount. In these cases, a driver would not necessarily be considered to be the at-fault driver if their actions are not 51 percent responsible for the accident but the fact that the driver failed to do something to prevent it will be added to their driving records. When this happens, they will lose their good driving discounts because it only takes one violation for them to be ineligible to receive the discount that can be as much as 20 percent.

The latest changes to the auto insurance laws also give auto insurers more choices as to where they can obtain evidence that they will use to determine fault. Previously, auto insurers had one choice; they could obtain the reports that the Department of Motor Vehicles (DMV) created. The complaint has often been that these DMV reports were insufficient to determine blame. Now, insurers can obtain the reports and evidence that other insurance entities compile in their databases, such as the Insurance Services Office that may have more extensive information.

According to the new laws, insurers will have a new protocol to follow before they begin to decide who caused a collision. From now on, the insurers are going to need to inform relevant people that they are investigating who caused the collision and it will need to be in writing. They will also need to let these people know in writing which driver they consider to have the majority of the blame for the accident and the reasons that they came to this conclusion.

New York

In New York, auto insurance fraud has been a problem. A common practice has been for medical professionals to bill auto insurance companies for services that were not provided to the patient. They have also over-billed for the services that may have been provided but did not warrant such a high payment. To combat this type of auto insurance fraud, the state no longer requires that auto insurance companies pay for these claims.

In the past, medical professionals were not required to give auto insurers proof that the level of service is warranted. With the new changes, medical professionals will need to present this proof and they will have 120 days to do so. Also prior to the changes, auto insurers would have been forced to pay fraudulent claims if they made the slightest mistake when processing these claims. Currently, this is no longer the case and auto insurers will not have to pay these fraudulent claims just because there is an error somewhere on the claim.

Florida

The governor of Florida also had auto insurance fraud to contend with in his state, and he addressed this issue by making changes to the auto insurance laws that will decrease the instances of fraud and make the Personal Injury Protection (PIP) insurance that drivers are required to purchase more affordable.

Florida is a no-fault state, and this means that the cause of the car accident will not immediately be determined in order for the driver’s bodily injury liability insurance to cover the injured’s medical costs. The injured driver and passengers will file a claim for the PIP insurance of the insured vehicle in which they were riding. With the new laws, these people will have 14 days to visit their medical professionals if they are hurt in a collision. Another difference is that their bills will only be paid if their conditions are considered to be emergencies.

Changing Auto Regulations that Save Lives

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Over the years, auto regulations have steadily changed and transformed. Safety regulations, in particular, have undergone incredible changes over the years. Compare the popular 1965 Mustang with the current model. Once sold without the basic safety equipment of seat belts, the car now features safety belts, air bags and other safety features that can save lives. Here are just a few of the regulatory changes that make cars safer.

Power Windows
Once considered a simple luxury, power windows are now standard equipment on most cars. Unfortunately, power windows have a track record of trapping and killing children who accidentally leaned on the switch while they were waving out the window. While older cars feature a basic toggle switch that is pressed down in either direction to raise and lower windows, new standards make the cars safer. Modern switches can be pressed down to lower the window, but they must be lifted up to raise the window.

Tire Pressure Monitoring System
Blowouts can cause accidents, and a vehicle with underinflated tires will have a sluggish response time. The tire pressure monitoring system, or TPMS, is designed to constantly monitor tire pressure and alert the driver if a tire is not at the proper levels. Required by law before a vehicle can be sold in the United States.

Electronic Stability Control
Once a sweet feature of high-end cars, this is now required on all vehicles manufactured after 2012. A computer system is used to sense if the vehicle is losing traction, and the computer will automatically apply the brakes at the proper wheels to correct the problem. These advanced systems can even reduce engine power if necessary, so it’s easier for you to stay on the road when the weather is bad.

Anti-Lock Brakes
Anti-lock brakes are already standard equipment on many cars. However, this system is an important component of electronic stability control systems, so you will see ABS brakes on all cars manufactured after 2012.

Front and Side Airbags
The more airbags your car has, the safer it is. However, only the front airbags are currently required in vehicles. However, the government is changing crash standards starting in 2012. While they won’t actually mandate that a car manufacturer make good use of side curtain airbags, the fact is that most manufacturers will have to include these life-saving devices to earn the high scores they crave.

There is no doubt that cars are much safer now than they were even a decade ago. Many options that were once limited to expensive cars are now required on all cars, even those that sell at the bottom end of the price range. From mandatory seat belts and seat belt laws to anti-lock brakes and tire pressure monitoring systems, any car you buy after model year 2012 is bound to be reasonably safe thanks to changing auto regulations.