Pay-As-You-Drive Auto Insurance: Impact & Implementation

This study was a collaborative effort between Progressive County Mutual Insurance Company and the North Central Texas Council of Governments. This report was prepared in cooperation with the Texas Department of Transportation and the U.S. Department of Transportation, Federal Highway Administration, and Federal Transit Administration. 2008

Each year, Massachusetts drivers are driving more, and with each additional mile driven, levels of global warming pollution rise. The prospect of tying auto insurance rates to miles driven, called Pay‐As‐You‐Drive auto insurance (PAYD), offers the opportunity to improve the accuracy of auto insurance rating while reducing vehicle miles traveled (VMT) and corresponding accident costs as well as reducing fuel consumption and greenhouse gas emissions. 2010

This report investigates the feasibility,
benefits and costs of implementing distance-based motor vehicle insurance. It compares
several distance-based insurance pricing options, and evaluates related concerns and
criticisms. The analysis indicates that distance-based pricing is technically and
economically feasible, and can provide significant benefits to motorists and society. 2011

The focus of this report is how insurance companies design their insurance premiums and the possibility to change this design in order to curb accident risks. The first paper presents a review of international experiences of "Pay-as-You-Drive" and "Pay-as-You-Speed" applications. The second reviews technical aspects and the options available when selecting an appropriate solution. A third paper presents a blueprint for the way in which an insurance premium based on "Pay-as-You-Speed" could be designed in order to capture important incentive aspects of the system. 2006, Swedish, with English summaries.

This study compares the safety and accessibility effects of Pay-As-You-Drive (PAYD) strategies, simulated using a transportation model. As part of this pilot a modeling study has been performed in order to assess the possible network (safety) effect of large-scale implementation of PAYD. The setup and results of this modeling study are described in this article.

The current lump-sum pricing of auto insurance is inefficient and inequitable. Drivers who are similar in other respects—age, gender, location, driving safety record—pay nearly the same premiums if they drive five thousand or fifty thousand miles a year. A better approach is simple and obvious: pay-as-you-drive (PAYD) auto insurance. With PAYD, insurance premiums would be priced per mile driven. All other risk factors will still be taken into account, so a high-risk driver would pay a greater per-mile premium than a low-risk driver. With insurance costs that vary with miles driven, people would be able to save money by reducing their driving, and this incentive would lead to fewer driving-related harms. PAYD would also be more equitable because it would eliminate the cross-subsidization of insurance costs from low-mileage to high-mileage drivers. Download report from site.

Speeding is an important cause for young drivers’ involvement in traffic accidents. A reduction in driving speeds of this group could result in fewer accidents. One way of reducing driving speed is offering explicit financial incentives. In collaboration with five Dutch car insurance companies, we tested the effects of a Pay-As-You-Drive insurance fee on driving speed. A group of young drivers could save money on their monthly insurance fee by keeping the speed limit. Driving speed was monitored through GPS technology during one year. Analyses showed that, relative to pre- and post-measurement, as well as a control group, the introduction of a Pay-As-You-Drive insurance fee significantly reduced speed violations of young drivers. (Link goes to abstract; library can provide full-text)

This study examines the relationship between accident costs and annual miles driven with mileage and claims data representing approximately 3 million individual car years of insurance exposure for private passenger automobiles in Massachusetts in the 2006 policy year. These findings provide a strong actuarial basis for pay-as-you-drive insurance, in which drivers are charged rates per mile that differ depending on the driver's class and territory. A model of consumer response to pay-as-you-drive insurance based on studies of miles elasticity to gasoline prices suggests that if all drivers in Massachusetts switched to per mile insurance policies, aggregate vehicle miles traveled in the state would drop by 5.0% to 9.5%. 2012

The authors conducted a study of approximately 16,000 drivers under the age of 30 that had purchased a pay-as-you-drive insurance policy, where their risk of being involved in a crash was analyzed from vehicle tracking data using a global positioning system. Significant differences were found based on experience, gender, driving conditions, speed, etc. 2014, Abstract only.

Much has been written about the potential public policy and consumer benefits of pay-as-you-drive-and-you-save (PAYDAYS) insurance, but without acknowledging that the way that PAYDAYS insurance is offered will affect the level of such benefits. Further, actuarial accuracy, consumer acceptance, and the cost of offering PAYDAYS insurance are all affected by how such insurance may be offered. 2009 - Library can supply.

By providing a broad array of compensation mechanisms to auto accident victims, the law encourages people to drive more. The
rationale underlying that public policy has, however, eroded. Environmental degradation, public health problems, and other costs require overhauling the system. This Article recommends two changes
to the auto insurance system aimed at encouraging people to drive less.