Car Insurance

Want to save money by driving less? Currently, low mileage drivers receive minimal discounts for driving less. You may put half the miles on your car that the average motorist does, but receive only a small discount on your insurance. Environmental Defense promotes Pay-As-You-Drive Insurance (PAYD), an innovative concept that links insurance polices to an odometer rather than just a date on the calendar. PAYD gives all drivers the opportunity to save money while protecting the environment.

PAYD provides financial incentive for driving less; it is expected to reduce driving and congestion by 10 to 12%. Driving less reduces air pollution, toxic runoff from roads, and climate impacts. Additionally, PAYD is expected to reduce accidents; a 10% reduction in driving is estimated to result in a 17% decrease in crashes.

PAYD also makes insurance more affordable by giving drivers greater control over their premium. Under the current system, low-mileage drivers (usually low-wage earners, seniors, carpoolers, bicyclists, and bus riders) subsidize high-mileage drivers.

PAYD links auto insurance policies to mileage by converting a portion of your annual fee into a per mile fee. The per mile fee incorporates all existing rate factors (i.e. vehicle type, driving history). Details may vary among the Pay-As-You-Drive policies auto insurance companies are expected to offer, but the general format will likely be one where you pay in advance for a predetermined number of miles, and either pay more, or receive a rebate depending on how much you drive. (Find out more.)
One way to buy PAYD insurance

GMAC Insurance and OnStar vehicle services have designed a new mileage discount program that will allow motorists who own GM Vehicles with OnStar service to earn an extra discount based on the miles they drive. This program is currently available in Arizona, Indiana, Illinois and Pennsylvania with plans to expand the program to additional states in the near future (read OnStar’s press release).

The On-Star system automatically reports vehicle odometer reading at the beginning and end of the policy term to verify vehicle mileage. Motorists can receive discounts of up to 40% and save hundreds of dollars annually. Discounts are offered to motorist driving less than 15,000 miles a year; the lower the vehicle mileage, the more significant the discount.
What’s happening internationally

Several countries – including, most notably, England – already offer PAYD insurance options. England’s Norwich Union Insurance began offering PAYD insurance to drivers on a limited basis in 2003, and is looking into further developing its PAYD program to meet growing demand. Marketing research estimates that approximately half of all English drivers are willing to consider the possibility of subscribing to a PAYD insurance policy. (Learn more at http://www.norwichunion.com/pay-as-you-drive/index.htm).

Additionally, Japan’s Aioi Insurance has recently started offering PAYD insurance using an odometer-based system. (For more information, visit http://www.ioi-sonpo.co.jp/).
What states are doing

In the past few years, some states have individually started promoting PAYD insurance as an option for consumers. In 2005, Congress reauthorized the federal transportation law called “Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users” (SAFETEA-LU). This law includes a new $3 million per year set-aside for non-toll market incentive projects like PAYD insurance. Eleven states have already applied for funding to study or pilot PAYD insurance policies.

Oregon

The Oregon Environmental Council (OEC) is working to bring PAYD to Oregon consumers. In June 2003 the Oregon legislature passed House Bill 2043 (http://www.leg.state.or.us/03reg/measures/hb2000.dir/hb2043.en.html), which provides $100/policy tax credits to insurers that offer Pay-As-You-Drive pricing. OEC has built a database of potential PAYD insurance customers to show the insurance industry that a market for PAYD insurance exists, and has met with insurance companies to encourage them to offer PAYD insurance. According to OEC, at least one insurance company recently expressed interest in offering PAYD insurance in the state, possibly beginning a program as soon as a year from now. For more information see OEC’S website.

Minnesota

In August 2004, Progressive Insurance began offering a modest PAYD incentive to 5,000 Progressive Direct Customers under its TripSense pilot program. Progressive is currently seeking customer feedback to decide whether to offer the TripSense program on a wider scale. This program will yield important driver behavior data that could advance PAYD efforts. (For more information see Progressive Insurance’s web site https://tripsense.progressive.com/faq.aspx).

Texas

During the 2001 session, the Texas Legislature passed HB 45 (http://www.legis.state.tx.us/BillLookup/History.aspx?LegSess=77R&Bill=HB45), giving insurance companies authority to offer PAYD insurance policies. The state insurance commissioner approved rules regarding mile based insurance rates in January 2002. In 2004, the North Central Texas Council of Governments (NCTCOG) allocated $1.5 million to help fund PAYD pilot programs. NCTCOG recently partnered with Progressive Insurance to launch the Driving Research Study, a two-year initiative that will offer PAYD insurance to 3,000 volunteers. The Driving Research Study will track the effects of PAYD insurance pricing on consumer behavior and air quality. (For more information see NCTOG’s PAYD website http://www.nctcog.org/trans/air/programs/payd/index.asp)

Washington

Washington State Department of Transportation market survey research indicates that offering vehicle insurance discounts based on reduced driving mileage is one of the most attractive incentives to encourage commuters to shift to ridesharing and transit. As a result, King County Metro, the largest rideshare and transit agency in the Puget Sound region, is in negotiations with an insurance company to run a five-year pilot program offering PAYD insurance to some of its 150,000 Transit Pass holders. King County is seeking $2.2 million from the government and partner agencies to fund a statewide PAYD pilot program.

California

This July, California’s Office of Administrative Law approved regulations that would require car insurance rates to be based more on miles driven and on driving records than on the zip code where a driver lives. This action could be a first step towards allowing a PAYD insurance system to be offered in the state. (More information on California’s regulatory change ).