SACRAMENTO, CA - The California Department of Insurance has given the green light to two insurance companies -- State Farm and the Automobile Club of Southern California -- seeking state approval to begin offering "pay-as-you-drive" auto policies. The policies offer lower rates for coverage of motorists who drive fewer miles.

"The voluntary pay-as-you-drive initiative is an innovative program that will allow insurers to offer plans based on more accurate mileage, so that people who choose to drive less will pay less for auto insurance," said California Insurance Commissioner Steve Poizner. "The regulations I finalized last year allow insurers to offer this innovative option without compromising consumer privacy. I'm pleased to approve plans for Automobile Club of Southern California and State Farm to offer this kind of coverage to policyholders. I hope other insurers follow suit."

Beginning on February 28, 2011, State Farm customers will have an option to move into the new verified mileage plan, which State Farm has labeled its Drive Safe and Save program. Under the plan, State Farm will offer an initial 5 percent discount for the first policy term to insured drivers who agree to self-report their odometer readings at the beginning and end of each policy period or who agree to allow State Farm to access their mileage data automatically when the insured driver's vehicle has an active On Star system.

The mileage amounts used in determining the applicable rates for each subsequent policy term will be based upon the actual verified mileage from the previous term. Those insured parties who choose these more accurate mileage reporting methods and drive less than 19,000 miles will have lower premiums than those who simply estimate their miles for the policy term based upon current loss projections. In addition, State Farm has created 39 new and narrower 500-mile pricing intervals for its Drive Safe and Save program that will allow those who drive fewer miles to enjoy even greater savings.

Those who purchase this policy will then be rated based upon the actual annual miles driven. Under the program, consumers who reduce their driving habits by as little as 500 miles per year will see a reduction in their rates.

Beginning on February 1, 2011, the Automobile Club of Southern California's Pay-Drive program will be made available to insured drivers who agree to report their odometer readings at the beginning and end of each policy period or who agree to plug in a small telematics device into their automobile to automatically record the number of miles driven. The rates for those who verify their actual miles driven via these methods will now be, depending on the number of miles driven, from 1 percent to 10.5 percent lower than those policy holders in the same "mileage band" who simply estimate their miles for the policy term.

In addition to offering personal auto policies, both State Farm and the Automobile Club of Southern California provide auto policies for small businesses.