New Jersey has become the latest state to allow pay-as-you-drive auto insurance plans, which are also permitted in Alabama, Michigan, Minnesota and Oregon. A pay-as-you-drive auto insurance plan is one that charges a driver based on the numbers of miles driven and how abruptly drivers brake and accelerate. Two large insurers, GMAC Insurance and Progressive, currently offer such plans.

GMAC Insurance and OnStar have partnered to create the Low-Mileage Discount program. Under this program, participants pay based on how many miles they drive. A participant’s odometer reading from his or her monthly OnStar Vehicle Diagnostics email is forwarded to GMAC Insurance. Based on those readings, GMAC Insurance will decrease its premiums using discount tiers corresponding to miles driven. GMAC Insurance advertises that subscribers have saved up to 54% on their premiums if they drive less than 15,000 miles annually.

Progressive's participants are given a small device to plug into the data port of vehicles that are model 1996 or newer. The device records the driving behavior of participants, including speed and when the device is connected or disconnected. Information is transmitted either wirelessly or through manual upload to Progressive. Participants are able to view driving logs on Progressive's MyRate website and see their discounts, recent trips, driving habits by day of the week or time of day and compare their driving to other participants. Progressive advertises that participants could see a savings of up to 40 percent under this program.

Meanwhile, California legislators are debating whether to allow similar pay-as-you-drive insurance plans in California. Proponents of pay-as-drive-insurance plans say that such plans would encourage motorists to drive less by cutting their insurance rates and premiums, thereby alleviating traffic congestion and protecting the environment. Opponents cite privacy concerns and worry that because a monitoring device, like the type used by Progressive, gives insurance carriers the exact location of participants at all times, it will be used as a surveillance device.