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Originally published December 14, 2010 at 7:56 PM | Page modified December 14, 2010 at 8:08 PM

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Pay-by-the-mile insurance looking to go the distance

MileMeter is the nation's only company to offer pay-by-the-mile auto insurance without using a vehicle-tracking device. The online-only company is licensed to provide insurance in Texas, but it's on the verge of expanding into other states and offering more options.

The Dallas Morning News

Chris Gay is out to change the auto-insurance industry.

He launched MileMeter in 2008 as the nation's only company to offer pay-by-the-mile auto insurance without using a vehicle-tracking device. The online-only company is licensed to provide insurance in Texas, but it's on the verge of expanding into other states and offering more options.

Gay came up with the idea after a bad insurance experience when his car was hit by another driver in 2004.

Mileage-based insurance has been around for about a decade, but it's been slow to spread.

That's changing: About 10 auto insurers have added or started testing pay-as-you-go policies in the past two years. Such policies are now offered in about 35 states by insurers such as Progressive, American Family and GMAC Insurance.

Nearly two-thirds of U.S. households would pay about $270 less per car under a mileage-based insurance program, according to a report by the Brookings Institution.

Gay calls MileMeter the "anti-insurance insurance company."

Customers pay in advance for up to 6,000 miles at a time and can buy more online if needed.

MileMeter rates are based on customer-supplied odometer photos, age, home location and vehicle type but not credit scores or driving habits.

The theory is that insurance companies can offer lower rates to people who seldom drive and are deemed less risky.

Insurers say mileage-based coverage is best suited for retirees and college students who don't drive much, people who use mass transit but need a weekend car, business travelers who fly a lot and families with an extra car they drive only occasionally.

Alex Hageli, director of personal lines for the Property Casualty Insurers Association of America, attributes the increased interest to more advanced technology and the time it takes to build a system to monitor and analyze data.

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Mileage-based insurance is "the next big thing," Hageli said. "It's one more step toward getting the most accurate picture of the level of risk a driver represents for insurers."

One in four Progressive customers sign up for its pay-as-you-drive program, said Richard Hutchinson, general manager of usage-based insurance. He wouldn't disclose customer numbers or say whether the program is profitable but said the company is committed to expanding it to more states.

Ohio-based Progressive was first to try mileage-based pricing and now offers it in 25 states. Its pricing also includes times of day driven and driving behavior collected by a device under a car's steering column.

Gay, a former systems analyst software programmer, wrote the code for MileMeter in 2004. He also raised $260,000 in seed capital and won Texas regulatory approval.

But by late 2007, chief executive Gay nearly shut down the company during the financial crisis. Then, he received a phone call that saved it: MileMeter won Amazon.com's startup contest, which helped attract $7.65 million in capital from Compass Global Fund.

Today, MileMeter has several thousand customers, said Gay, 34. He wouldn't disclose revenue but said the eight-employee company is profitable on underwriting.

Most MileMeter customers drive less than the national average of 12,000 miles a year and pay about $200 a year for insurance, Gay said. The Texas average is $854 a year for liability, collision and comprehensive coverage.

"It's been great," said Rebecca Jackson, a MileMeter customer for 18 months. "I (fly) 95 percent of the time for work, so I have a 3-year-old car with 15,000 miles. I can pay for what I need."

Jackson, who lives in Dallas and drives up to 4,000 miles a year, now pays about $600 a year for full coverage that used to cost her $1,400 through a different insurance company.

MileMeter's rates become less competitive as a customer adds more miles or coverage. For example, 2,000 miles at the lowest liability level costs $89.60 for six months. The price increases to $326.40 for 6,000 miles.

MileMeter recently received $2.1 million in bridge financing — interim financing provided until the next major private-equity funding — from Compass and company management to hire and expand, Gay said.

"We've proven that customers want it and that it's profitable," he said. "The industry is trying to play catch-up to where we are now."

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