Richard Woll, FCAS (Fellow of the
Casualty Actuarial Society), at Allstate
Why did the Texas Legislature pass the
cents-per-mile choice law?
legislator hears repeatedly from
constituents who are angry about auto
Most upset are people who have an
accident with an uninsured car.
This problem remains despite
ongoing initiatives by the Texas
Department of Insurance.
The percent of uninsured cars on
the road, according to insurance
industry officials, may be even higher
than it was when insurance was made
compulsory two decades ago.
seeing little progress in eliminating
the related problems of high insurance rates
and uninsured cars, the 77th
Legislature this year enacted HB 45 -
the “Cents-Per-Mile Choice” law.
The law was designed to encourage
insurance companies to offer their
customers an affordable, cost-based
alternative to traditional
Bill 45, introduced by Rep.
McClendon, sponsored by Sen. Shapleigh,
and signed into law by Governor Perry,
allows companies to begin offering mile
rates as the way for consumers to exert
direct control over insurance cost –
buying miles only as needed at
cents-per-mile rates - beginning January
for HB 45 say that this legislation is
the first to:
 Offer a practical way to reduce the
number of uninsured cars in Texas.
 Challenge the insurance industry's
practice of overcharging drivers who
drive the fewest miles each year - and
are often the least able to afford
How do companies sell insurance at
are random, so to estimate a
statistically reliable cost per car
year, companies use the average cost
experience of a large number of cars in
a group defined by car, driver, and
household profiles. This cost per car is
the basis of the current rate for each
the activity that randomly produces
accidents is driving cars, the average
cost of the group also depends
proportionally on the average miles
driven by all of the cars during the
miles means more claims to pay and more
cost to the company.
offer a mile-rate alternative for cars
in a rate group, a company only needs to
divide the group’s current year rate
by the average miles of the thousands of
cars the company has assigned to the
the new law, each owner of a car in any
company group may choose between the
group’s year rate and its mile
How do you pay for insurance at a
of paying for insurance in installments
at a year rate, you can choose to buy
the same insurance at a mile rate.
The number of miles bought is
your choice too.
company assigns your car to one of its
rate groups by profiling your zip code,
car type and use, household drivers,
your credit history, and other
information about your household they
have access to. The choice of continuing
to pay at a year rate or buying miles as
needed is offered only after the company
sets the alternative year- and
mile-rates for your group.
that your company’s going year rate
for driving coverage of cars in your
profile group is $500, and the average
mileage for the group is about 10,000
miles a year.
(Companies get annual miles from
periodic Government studies that
determine the averages according to
driver, car, and household profiles.
After the first year, companies will
know the total miles driven by those of
your group who chose the mile rate
alternative the previous year.)
Then the company would give you
the choice of its year rate or buying
miles at your group’s average cost of
5.0 cents a mile.
purchased are added to your car’s
odometer reading and printed on a proof
of insurance card. You are responsible
for watching the mile limit to your
car's insurance in the same way you
watch your gas gauge. As the limit
approaches, you buy more miles to keep
the car insured.
you chose to buy 2,500 miles of
insurance protection - to be added to
your car’s current odometer mileage -
it would cost you $125 (= 5.0¢/mi. x
2,500 mi.) plus a nominal expense fee.
Before these miles were all
driven, you would have to buy more miles
to stay legally insured.
What are the adverse effects of
traditional ways car owners reduce their
rates are charged per car, not per
driver or per car mile. Therefore, the
only way to save without cutting
coverage, as everyone knows, is to
reduce the number of cars the family
a family with two cars sells one and
puts all of their driving on the other,
they save nearly 50% on their insurance
bill. However, this strategy is not
needed in higher-income neighborhoods
because most families can afford the
convenience of owning and insuring a car
for every driver.
But where used broadly, the
strategy has adverse consequences.
low-income areas, many households are
forced to save on insurance by drivers
This pushes up miles and costs
per insured car and with them the
The increase in insurance rates
forces more drivers to share cars that
are insured and creates a spiral of
increasing costs and rising insurance
cents-per-mile rates offers an
alternative to saving on insurance by
insuring fewer cars and driving them
lets drivers keep their cars and buy
miles of insurance protection like
gallons of gasoline, when they want to
and in the amounts suited to their needs
Who “saves” when some households
are forced to economize on driving?
driving less when gas prices rise, or
responding to economic reverses by doing
less driving for shopping or
entertainment, all result in less cost
and windfall profits for car insurers.
The cents-per-mile measure of insurance
cost explains why the number of
insurance claims historically decreases
when unemployment or gas prices rise.
Some companies spread their cost
savings as “dividend” refunds of a
uniform percent (5% to 20%) of the rates
to all policyholders, whether or not
they have individually been driving
car-mile measure of cost also explains
why men average more accident
involvements than women do: in every
driver age group, men simply average
more miles of driving.
Therefore, companies look to
women car owners as a source of extra
profits from lower costs that they call
“skimming the cream.”
Companies may choose to use these
extra profits from lower costs to keep
year rates down for those who do more
A parked car can be stolen or damaged
Would insurance for these losses
also be sold at cents per mile rates?
because these are not driving-related
losses. The law specifies that the
choice of mile rates is “for coverage
for losses caused by collision or other
(HB 45, Sec. 2)
rates apply to liability, uninsured
motorist, collision, personal injury
protection (PIP), and any other coverage
by your policy for driving-related
for non-driving related losses (which
are grouped under the term
“other-than-collision” coverage by
insurers), would continue to be paid for
at a year rate.
What about proof of insurance?
first time you choose to buy insurance
at a mile rate, the number of miles
purchased is added to your odometer
your odometer reads 60,500 miles when
1,500 miles are bought, the insurance ID
card would show "Company X insures
car VIN #### to 62,000 miles."
car becomes uninsured at 62,001 miles
unless you buy more miles to add to the
current 62,000-mile limit. This can be
done by a simple phone call to your
agent or the company's 24-hour 1-800
an ID CARD to serve as proof of
insurance for annual inspection and
registration, the law makes the
exception that 1,000 miles is the
minimum purchase amount, equivalent to
the 30 day minimum buy at year rates for
inspection and registration purposes.
Annual-rate insurance is
routinely sold for special purposes by
the day or week.
Who is responsible for checking
owners are responsible for watching the
mile limit for the vehicle's insurance,
the same way they watch the fuel gauge.
A transparent windshield sticker with
company logo - like the service period
stickers of garages and dealers - would
remind the car owner of the mile and
date limits on protection purchased.
order to get the policy renewed, an
annual reading for the insurance company
would be done at a service center, by
the agent, or at garages licensed to do
annual reading is not for billing
purposes—miles of insurance are bought
and paid for in advance.
Instead the reading serves two
 To help in detecting and preventing
 To record each car’s mileage in
the past year.
(Companies now base their year
rates on the claim cost per car-year in
each rate group.
Dividing this average dollar cost
by the group’s average mileage gives
the cents-per-mile cost basis of the
mile rate. The company’s past ($ cost per car year)/(miles per car
year)= cents-per-mile cost.)
What are the incentives for owners to
monitor the odometer limit to insurance?
people want to stay insured - in case of
an accident or a traffic stop.
owners who happen to exceed their
pre-purchased mileage limits would go to
their insurers to buy more miles of
coverage, including the miles for which
they had a lapse in protection.
experiencing such a lapse in protection,
most car owners would more carefully
watch mile limits.
Has CENTS-PER-MILE choice been used
now, insurers have only offered the
mile-rate choice to commercial fleet
approved by the TDI specify the rate
basis for fleets as either “per
vehicle” or “per mile”.
How do I access the CENTS-PER-MILE
The new law does not require insurance
companies to offer customers the option.
Texans should immediately demand that
their companies make this alternative
your agent today and request a
cents-per-mile quote along with your
dollar-per-year quote at renewal time.