State Farm is now offering its pay-as-you-drive (PAYD) program “Drive Safe & Save” in Ohio. Via a relationship with OnStar, State Farm has found a way to compete with Progressive, the recognized leader of the PAYD option for auto insurance.

Last October, State Farm started promoting the program in Ohio with letters stating “Drive less? Save more on State Farm auto insurance.” The letter promoted savings on auto insurance premiums. OnStar would provide the monthly mileage readings to State Farm for determination of the savings amount.

Progressive’s MyRate program has been expanding month-by-month. Last August, an InSight article said the MyRate program operated in 14 states. Today that count has moved up to 17.

These PAYD programs may be catching on. A July 2008 Brooking Institution report estimated that two out of three households would pay less for auto insurance and each would save an average of $270 per car with PAYD insurance over a conventional auto policy.

Will State Farm’s new PAYD program be able to compete with Progressive? And do you think PAYD holds the future for the auto insurance industry, offering more flexibility for those who don’t drive everyday?

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