Pay-As-You-Drive Vehicle Insurance
Converting Vehicle Insurance Premiums Into Use-Based Charges
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Victoria Transport Policy Institute
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Updated 6 September 2019
This chapter describes Pay-As-You-Drive (PAYD) vehicle insurance and its potential impacts on vehicle travel and safety. PAYD means that a vehicle’s insurance premiums are based directly on how much it is driven during the policy term, providing additional savings when motorists reduce their annual mileage.
Description
Pay-As-You-Drive (PAYD) Vehicle Insurance (also called Distance-Based, Usage-based, Mileage-Based, Per-Mile Premiums and Insurance Variabilization) means that a vehicle’s insurance premiums are based directly on how much it is driven during the policy term. The more you drive the more you pay and the less you drive the more you save. This can be done by changing the unit of exposure (i.e., how premiums are calculated) from the vehicle-year to the vehicle-mile, vehicle-kilometer or vehicle-minute. Existing rating factors are incorporated so higher-risk motorists pay more per unit than lower-risk drivers. For example, a $375 annual premium becomes 3¢ per mile, and a $1,250 annual premium becomes 10¢ per mile. An average U.S. motorist would pay about 6¢ per mile.
Pay-As-You-Drive can be optional, so motorists choose the unit of exposure they want, just as consumers now choose differ rate structures for telephone and Internet service.
Justifications for Pay-As-You-Drive Insurance
Vehicle insurance is a significant portion of total vehicle costs, averaging about $800 per vehicle-year in the U.S. A typical motorist spends almost as much on insurance as on fuel. It is the largest vehicle cost for many lower-income motorists. Insurance is currently considered a fixed cost with respect to vehicle use; a reduction in mileage does not usually provide a comparable reduction in insurance premiums.
Pay-As-You-Drive insurance reflects the Market Principle that prices (what consumers pay) should be based on costs (the costs of providing a good or service). Research indicates that within existing price categories, annual claims increase with annual vehicle mileage, as illustrated in Figure 1. Mileage is just one of several factors that affect crash rates. It would not improve actuarial accuracy (i.e., how well premiums reflect insurance costs for a particular vehicle) to use mileage instead of other rating factors, for example, to charge all motorists the same per-mile insurance fee, but accuracy improves significantly if annual mileage is incorporated in addition to existing rating factors (Ferreira and Minikel 2010). Any other price structure overcharges low-mileage motorists and undercharges high-mileage motorists within a rate class.
Figure 1 Crash Rates by Annual Vehicle Mileage (Litman 2001)
Crashes per vehicle tend to increase with annual mileage.
Pay-As-You-Drive pricing can help achieve several public policy goals including fairness, affordability, road safety, consumer savings and choice, and reduced traffic problems. PAYD gives consumers a new way to save money by returning to individual motorists the insurance cost savings that result when they drive less. Motorists who continue their current mileage would be no worse off on average then they are now, while those who reduce their mileage save money. As a result, consumers benefit overall.
It helps reduce traffic congestion, road and parking facility costs, and environmental impacts. It reduces the need for cross-subsidies currently required to provide “affordable” unlimited-mileage coverage to high-risk drivers. It can particularly benefit lower-income communities that currently pay excessive premiums (see discussion by NOW below).
How It Is Implemented
Pay-As-You-Drive pricing is implemented by individual insurance companies, although legal or administrative changes may be needed to remove regulatory barriers. Governments can implement incentives or regulations to encourage insurers to offer Pay-As-You-Drive pricing, and public-private projects can help pilot and promote this pricing option, as described in the case studies section below.
Several methods can be used to calculate and collect premiums. One is to have motorists prepay for the miles they expect to drive during the term of coverage (typically a year), either in a lump sum or in several payments. For example, some motorists might pay for 12,000 miles at the start of the term, while others might pay for just 5,000 miles at first and make additional payments as needed. The total premium is calculated at the end of the term based on recorded mileage. Vehicle owners are credited for unused miles or pay any outstanding balance. Other insurance companies charge for insurance as they do now, but provide a rebate if, at the end of the policy term, a vehicle’s mileage is below certain limits. Another approach is for insurance companies to bill motorists based on their monthly or bi-monthly vehicle mileage, similar to other utilities. This requires more frequent mileage data collection.
Pay-As-You-Drive pricing requires verified mileage data. This can be collected in various ways. The simplest approach is to have brokers or vehicle owners report odometer readings, by email or mail, with random verification spot checks. More sophisticated systems use electronic devices which automatically send mileage data, or even track when and where a vehicle is driven. The cost of automated data collection is declining since most newer cars have odometer data recorded in the engine computer, and many have wireless communication systems or GPS transponders. Two insurance companies use mileage data that is automatically transferred each time a vehicle is refueled. Another approach is to require odometer audits as described below. This could provide data as accurate as other metered goods (such as electricity) at little extra cost.
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Odometer Audits Odometer audits involve the collection of odometer data by a certified business. An odometer audit requires five steps:
1. Check speedometer and instrument cluster for indications of tampering. 2. Record tire size and check that it is within the specified range. 3. Attach a small seal to the ends of mechanical odometer cables to indicate if it has been removed. This is unnecessary on most newer vehicles with electronic speedometers. 4. Check odometer accuracy and calibrate with a dynamometer (this step is optional, or could be performed on a spot-check basis). 5. Record odometer reading and forward results to the vehicle licensing agency.
Odometer audits would be performed when a vehicle’s insurance is renewed, in most cases once a year. Odometer audits typically require 5 to 10 minutes, and less if performed with other vehicle servicing (tune ups, emission inspections, etc.), with an incremental cost of $5 to $10 (assuming chargeout rates of $60 per hour). Existing vehicle service businesses and emission inspection stations could be certified as auditors, and some insurance agencies might offer free audits as a marketing strategy. Auditors could be certified by a government agency, as with other types of public services, or by individual insurance companies or insurance professional organizations.
There are concerns that odometer fraud could be a problem, but odometer audits should provide data as accurate as that used in other common commercial transactions and more accurate than self-reported information now used for insurance pricing. Most tampering can be detected during audits and crash investigations, and fraud would void insurance coverage. Vehicle manufactures produce increasingly tamper-resistant odometers since leases, warranties and used-vehicle sales all rely on odometer readings. Audits would provide additional benefits, including accurate mileage information for used-vehicle buyers, and more accurate information for transportation planning.
Other systems could be used to measure vehicle use, including special on-board electronic meters and GPS-Based Pricing, but these add significant costs and raise privacy issues (Distance-Based Pricing). Several new technologies being proposed or implemented which could automate some or all of the data collection processes, including: www.paygo-system.com |
Travel Impacts
Pay-As-You-Drive insurance averages about 6¢ per mile, which represents 40-60% of the average vehicle fuel costs. Applying a standard elasticity value, this indicates that PAYD pricing should reduce affected vehicles’ annual mileage by 8-12%, with larger reductions by higher-risk motorists, since they pay higher per-mile premiums (Litman 1997; Bordoff and Noel 2008). Optional odometer-based PAYD would probably attract 20-40% of total policies, representing a significant portion of motorists who expect to drive less than 80% of average annual mileage in their rate class, representing 10-20% of total mileage, and GPS-based pricing would probably attract 2-4% of motorists, representing 1-2% of total mileage, due to its significantly higher financial costs and privacy concerns. These portions should increase over time as fixed-rate premiums increase, since they will lose the cross-subsidy from lower-annual-mileage motorists, eventually causing the market to shift to PAYD pricing, although this would probably take a decade or so.
Table 2 Travel Impact Summary
|
Travel Impact |
Rating |
Comments |
|
Reduces total traffic. |
3 |
Provides an incentive to reduce vehicle use. |
|
Reduces peak period traffic. |
2 |
Provides an incentive to reduce vehicle use. |
|
Shifts peak to off-peak periods. |
0 |
|
|
Shifts automobile travel to alternative modes. |
3 |
Provides an incentive to reduce vehicle use. |
|
Improves access, reduces the need for travel. |
0 |
|
|
Increased ridesharing. |
2 |
Provides an incentive to reduce vehicle use. |
|
Increased public transit. |
2 |
Provides an incentive to reduce vehicle use. |
|
Increased cycling. |
2 |
Provides an incentive to reduce vehicle use. |
|
Increased walking. |
2 |
Provides an incentive to reduce vehicle use. |
|
Increased Telework. |
2 |
Provides an incentive to reduce vehicle use. |
|
Reduced freight traffic. |
0 |
Would not generally apply to freight vehicles. |
Rating from 3 (very beneficial) to –3 (very harmful). A 0 indicates no impact or mixed impacts.
Benefits and Costs
Pay-As-You-Drive Insurance can provide the following benefits (Bordoff and Noel 2008; Edlin 2003; Ferreira and Minikel 2010; Greenberg, 2007; Litman 2001; Parry 2004):
· Consumer savings. The average motorist is predicted to save $50-100 per vehicle. These savings represent the reductions in insurance compensation costs that are returned to individual motorists who reduce their driving, and therefore reduce their chance of having a crash. These are true cost savings, not just economic transfers.
· Economic Efficiency. Pay-As-You-Drive Insurance conveys to drivers the true costs they impose and allows motorists a chance to save money by reducing these costs. It reflects the principle that prices should reflect costs.
· Increased fairness. Current insurance pricing overcharges motorists who drive less than average and undercharge those who drive more than average each year in a price category.
· Progressive With Respect To Income. Since lower-income motorists tend to drive less than average, current insurance pricing is regressive. It forces lower-income motorists on average to subsidize the insurance costs of higher-income motorists. Butler (2000) argues that current insurance pricing results in extremely high premiums in lower-income areas (since a greater portion of low-mileage motorists drive uninsured which reduces funds to cross-subsidize higher-mileage motorists), a problem that can be corrected by PAYD pricing.
· Increased affordability. Pay-As-You-Drive pricing vehicle insurance more affordable (Litman, 2004). It allows more lower-income households to insure a vehicle, and makes it more cost effective for households of any income class to insure an extra vehicle that is seldom driven, such as an old truck used for errands or a recreational vehicle.
· Reduced Uninsured Driving. In some jurisdictions, a significant portion of vehicles is uninsured because of high premium costs, and because owners do not consider it cost effective to insure a low annual mileage vehicle. PAYD pricing makes insurance more affordable, which can help reduce this problem.
· Reduced Need for Cross-Subsidies. Pay-As-You-Drive pricing reduces the need to overcharge low-risk drivers in order to provide “affordable” unlimited-mileage insurance coverage to higher-risk motorists.
· Reduced vehicle travel. Pay-As-You-Drive Insurance is predicted to reduce vehicle travel by more than 10%, making this one of the most effective TDM strategies currently proposed. As a result it reduces:
o Traffic crashes.
o Traffic congestion.
o Road and parking facility costs.
o Energy consumption and pollution emissions.
o Consumer costs.
o Urban sprawl.
· Increased safety. Vehicle crashes should decline even more than mileage (a 10% mileage reduction is predicted to reduce crashes by 12-15%) because higher-risk motorists (who currently pay high premiums per vehicle-year) would pay higher per-mile fees, and would therefore have the greatest incentive to reduce their driving. If implemented at throughout the U.S., this would save about 5,000 lives a year, and prevent a much larger number of disabilities and injuries (Safety Impacts of TDM).
Pay-As-You-Drive Insurance can provide significant Congestion and Emission reduction benefits. Table 3 summarizes the results of a comprehensive traffic modeling exercise which indicates, for example, that a 2¢ per mile vehicle fee applied to all vehicle travel in the South Coast (Los Angeles) region would reduce vehicle trips by 4.1%, but congestion delay would decline by a much larger 10.5%. This suggests that Pay-As-You-Drive vehicle insurance applied to all vehicles in an urban region could reduce congestion delays by 10-25%. Winkelman (2007) ranked PAYD pricing as the most effective VMT emission reduction strategy.
Table 3 Impacts of 2¢ Per Mile Fee, Year 2010 (Harvey and Deakin, 1997, Table B.9)
|
Region |
VMT |
Trips |
Delay |
Fuel |
ROG |
|
Bay Area |
-3.9% |
-3.7% |
-9.0% |
-4.1% |
-3.8% |
|
Sacramento |
-4.4% |
-4.1% |
-7.5% |
-4.4% |
-4.3% |
|
San Diego |
-4.2% |
-4.0% |
-8.5% |
-4.2% |
-4.1% |
|
South Coast |
-4.3% |
-4.1% |
-10.5% |
-5.2% |
-4.2% |
VMT = change in total vehicle mileage. Trips = change in total vehicle trips. Delay = change in congestion delay. Fuel = change in fuel consumption. ROG = a criteria air pollutant. Revenue = annual revenue in millions of 1991 U.S. dollars. See original report for additional notes.
Costs include transition costs to insurance companies and vehicle registration agencies of implementing a new pricing system, and the costs of “odometer audits,” which are estimated to have incremental costs averaging $5-10 per vehicle year.
Table 4 Benefit Summary
|
Objective |
Rating |
Comments |
|
Congestion Reduction |
2 |
Reduces total automobile travel. |
|
Road & Parking Savings |
3 |
Reduces total automobile travel. |
|
Consumer Savings |
3 |
Provides consumer savings. |
|
Transport Choice |
3 |
Improves automobile affordability. |
|
Road Safety |
3 |
Reduces automobile travel. |
|
Environmental Protection |
3 |
Reduces automobile travel. |
|
Efficient Land Use |
3 |
Reduces automobile travel, particularly benefits urban residents. |
|
Community Livability |
2 |
Reduces automobile travel. |
Rating from 3 (very beneficial) to –3 (very harmful). A 0 indicates no impact or mixed impacts.
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Consumer Impacts Distance-based insurance pricing gives motorists a new opportunity to save money if they reduce their mileage. People sometimes misunderstand the source of these savings; they assume that the savings represent cost shifts, so each dollar of savings to motorists who reduce their mileage requires an additional dollar paid by higher mileage motorists. This is untrue. Much of the savings reflect true cost reductions provided by reductions in crashes and therefore insurance claim costs. With current insurance pricing, motorists who reduce their mileage provide savings that benefit their insurance company or all motorists in their rate class, with distance-based insurance individual motorists receive the savings that result when they reduce their mileage.
These savings reflect increased consumer surplus, that is, net benefit to the motorists who reduce their mileage. Since DBVI offers a new opportunity for savings, the mileage reductions represent consumer benefits; the mirror image of a price increase. For example, if a motorist who shifts to distance-based insurance with 10¢ per vehicle-mile premiums responds by reducing their vehicle travel 10%, or 1,200 annual vehicle-miles, as models predict, we can surmise that these miles foregone have an incremental value to that motorist ranging between 0¢ and 10¢. If those miles were worth less than 0¢ (they provide no incremental consumer benefit), they would not be driven in any case. If they consider those miles worth 1-9¢, the additional 10¢ per mile savings will convince them to give it up, they would rather have the money. If the additional mile is worth more than 10¢ per mile, a 10¢ per mile savings is inadequate to convince motorists to forego that mile, they will continue driving. Of the 1,200 miles foregone, we can assume that the average consumer surplus (net consumer benefit) is the mid-point of this range, that is, 5¢ per vehicle-mile. Thus, we can calculate that miles foregone by a 10¢ per vehicle-mile insurance premium have an average consumer surplus value of 5¢, or a $60 overall increase in consumer surplus (1,200 miles times $0.05 per mile).
Under most scenarios, distance-based insurance would be a consumer option, so individual motorists could choose the pricing structure that best meets their individual needs just as consumers can choose various price structures for telephone and internet services (per minute, a bundle of minutes, or unlimited usage). This reflects the principle of consumer sovereignty, the idea that consumers benefit from having diverse goods (including different types, qualities, and price options) from which they can choose the combination that best meets their needs.
To the degree that lower-mileage motorists overpay their true insurance costs and cross-subsidize higher mileage motorists, distance-based pricing may eventually increase premiums for conventional (flat-rate) policies, as more lower-annual-mile motorists shift to distance-based policies. Such increases should be gradual and predictable, with a few percent of motorists shifting to the new price structure each year, forcing insurers to raise flat-rate premiums a few percent a year. This will raise the annual mileage point at which motorists consider distance-based insurance attractive. These price increases reflect the actual costs of insuring higher-annual-mileage vehicles and so reflect increases in economic efficiency and equity. |
Equity Impacts
Current vehicle insurance pricing significantly overcharges motorists who drive their vehicles less than average each year, and undercharges those who drive more than average within each price class (Edlin, 2003; Litman, 2001). Since lower-income motorists drive their vehicles significantly less on average than higher-income motorists, this is regressive. Distance-based insurance is fairer than current pricing because prices more accurately reflect insurance costs.
Distance-based pricing benefits lower-income drivers who otherwise might be unable to afford vehicle insurance, and who place a high value on the opportunity to save money by reducing vehicle mileage. It benefits lower income communities that currently have unaffordably high insurance rates, as described below. Distance-based insurance would provide significant savings to workers during periods of unemployment, when they no longer need to commute.
Figure 2 Current and Per-Mile Premiums Annual Costs Compared
This figure compares the costs of Usage-Based Premiums for Low, Average and High mileage vehicles. “Current” refers to vehicles with fixed-price insurance. “Same Mileage” refers to vehicles with Usage-Based Premiums that do not reduce annual mileage. “Reduced Mileage” assumes a 10% reduction.
Figure 2 illustrates the financial impacts of Pay-As-You-Drive pricing on different types of motorists. A low-cost, low-mile vehicle such as might be owned by a low-income motorist saves $225, an 8.4% reduction in total vehicle expenses. An average motorist saves $64 annually in insurance costs if vehicle travel declines 10% as expected. A high-mileage motorist pays $331 more per year, a 4.7% increase in total vehicle expenses.
Some people raise concerns that particular groups (such as rural residents) will be disadvantaged by distance-based price structure. This is not true of Pay-As-You-Drive pricing that is based on the average mileage of each rate class, as described here. Under such a system, only rural residents who drive more than average among rural residents would pay more, and about half of all rural residents would pay less. For example, if rural vehicles are driven an average of 18,000 miles a year, a rural motorist who drives their car “only” 15,000 miles annually would save money.
Table 5 Equity Summary
|
Criteria |
Rating |
Comments |
|
Treats everybody equally. |
2 |
Most groups benefit, although some more than others. |
|
Individuals bear the costs they impose. |
3 |
Makes insurance pricing more actuarially accurate. |
|
Progressive with respect to income. |
3 |
Provides savings to lower-income motorists. |
|
Benefits transportation disadvantaged. |
3 |
Makes automobile ownership more affordable. |
|
Improves basic mobility. |
3 |
Makes automobile ownership more affordable. |
Rating from 3 (very beneficial) to –3 (very harmful). A 0 indicates no impact or mixed impacts.
Applications
Pay-As-You-Drive Insurance is suitable for implementation in any geographic region, and is particularly appropriate where insurance affordability, uninsured driving, traffic congestion, crashes or pollution are considered significant problems. It is implemented by individual insurance companies. Federal, state or provincial governments can require it or provide incentives to encourage it.
Table 6 Application Summary
|
Geographic |
Rating |
Organization |
Rating |
|
Large urban region. |
3 |
Federal government. |
1 |
|
High-density, urban. |
3 |
State/provincial government. |
3 |
|
Medium-density, urban/suburban. |
3 |
Regional government. |
1 |
|
Town. |
3 |
Municipal/local government. |
1 |
|
Low-density, rural. |
3 |
Business Associations/TMA. |
0 |
|
Commercial center. |
3 |
Individual business. |
1 |
|
Residential neighborhood. |
3 |
Developer. |
0 |
|
Resort/recreation area. |
3 |
Neighborhood association. |
0 |
|
|
|
School/college/university. |
0 |
Ratings range from 0 (not appropriate) to 3 (very appropriate).
Category
Incentive to Reduce Driving
Relationships With Other TDM Strategies
Pay-As-You-Drive Insurance is a type of Distance-Based Pricing and Market Reform. It supports and is supported by TDM strategies that improve the availability of alternative modes, or increase motorists’ incentive to reduce mileage. It encourages use of transportation alternatives such as Ridesharing, Public Transit, Nonmotorized Transport and Telework, and supports Smart Growth.
Stakeholders
Pay-As-You-Drive Insurance involves insurance companies, insurance regulators, state or provincial legislators, and transportation agencies. Motorists, transportation professionals, public safety officials, environmentalists, consumer groups and organizations concerned with poverty all have reasons to support PAYD pricing. The National Motorist Association and the Oregon/Idaho chapter of the American Automobile Association support Pay-As-You-Drive pricing as a way to make insurance more affordable and fair (NMA 1998).
Barriers To Implementation
The insurance industry has generally opposed Pay-As-You-Drive pricing because it requires changes in their practices and may reduce long-term profits by reducing total premiums. PAYD insurance requires changes in the way fees are calculated, and a network of odometer auditors, and so it is difficult for an individual insurance company to implement. Higher-mileage motorists tend to oppose Pay-As-You-Drive Insurance because it would increase their costs. Most consumers are unfamiliar with Pay-As-You-Drive Insurance, and many confuse it with Pay-At-The-Pump. Most consumers are unfamiliar with the full benefits of Pay-As-You-Drive Insurance, and many are skeptical of change.
Responses to Concerns About Per-Mile Insurance (Litman 2001)
This section discusses concerns that have been raised about distance-based pricing by the insurance industry.
Insurance pricing already incorporates mileage.
Although some insurance companies incorporate mileage-related rate factors such as commute distance or estimated annual mileage, none begins to approach actuarially accurate, marginal pricing, and so fail to give motorists accurate price signals.
Mileage is less important in predicting crashes than other rating factors.
Whether mileage is more or less important than other risk factors is irrelevant for PAYD pricing that incorporate existing rating factors. Until recently insurance companies had no reliable source of mileage data and so could not accurately determine the relationship between mileage and claims. Data based on independent odometer readings shows a strong relationship between mileage and claims within existing price categories.
Travel foregone could be lower risk than average, resulting in little crash reduction, and less insurance cost savings than reduced premium revenue.
This concern is technically valid, although there is no evidence that it is true. Available evidence indicates that broad vehicle travel reductions result in proportionally greater crash reductions and insurance savings. Additional research and pilot projects that test the effects of distance-based pricing could address this concern.
Distance-based insurance unfairly increases costs to high-mileage drivers.
Distance-based pricing would increase costs for motorists who drive significantly more than the current average within their price group. This is justified on actuarial grounds, and so increases fairness. Most motorists save money and experience net welfare gains with distance-based pricing, and very few would have their vehicle costs increase more than a few percent. Lower-income motorists tend to benefit significantly, because they tend to drive their vehicles less than average, tend to respond to cost saving options, and face the greatest insurance unaffordability problems.
Automobile insurance reform should focus on equity, affordability and safety.
Distance-based pricing helps achieve all of these goals. It increases equity by making premiums more actuarially accurate and reducing costs for lower income motorists. It allows motorists to save money and makes vehicle ownership more affordable. It significantly increases road safety.
Safety advances/congestion reduction/air pollution reduction/energy conservation can best be pursued in ways other than mileage-based insurance.
It is unnecessary to choose between distance-based pricing and other strategies. Distance-based pricing complements other strategies. Because of its multiple benefits, distance-based insurance can be one of the most cost-effective ways to achieve these objectives.
People need their cars too much to give them up. There will be no travel reduction.
Distance-based insurance is not expected to cause people to give up cars. In fact, by reducing fixed costs, vehicle ownership should increase slightly. There is extensive evidence that vehicle travel is affected by vehicle operating costs. A modest (5-15%) mileage reduction is predicted.
Consumers will not accept this change.
When PAYD pricing becomes available, a portion of motorists choose it, indicating consumer demand. A broad range of interest groups support distance-based pricing. Support should increase as consumers and citizens learn more about its benefits.
Odometer fraud will be a major problem.
Although some odometer fraud may occur, it is expected to be a minor problem overall, with fraud rates comparable to other common consumer transactions, and far lower than with current insurance pricing. Odometers are increasingly tamper resistant, regular odometer auditing should discourage and identify most tampering, and the financial incentive for fraud is relatively low. Insurers financial exposure would be minimal since odometer fraud voids coverage.
It would increase administrative costs to insurers and inconvenience vehicle owners.
Odometer audits are significantly cheaper than vehicle emission inspections because they require less equipment and specialized training, can be performed in conjunction with other vehicle servicing, and can be provided by a large number of businesses in a competitive market. Total incremental costs are modest (predicted to be about $6 per vehicle year), and far smaller than direct benefits to consumers and society.
If distance-based pricing were better, insurance companies would already use it.
Individual insurers face several barriers to implementing distance-based pricing. An individual company faces relatively high administration costs to establish an odometer auditing system. Insurance regulators are often unsupportive of pricing innovations. An individual insurance company only captures a small portion of the total benefits, since most financial savings are passed back to customers or accrue to competitors. Insurers do not profit from reductions in uncompensated crash costs, congestion, infrastructure costs, or pollution, or benefit directly from increased equity.
Insurance companies currently maximize profits by maximizing their gross revenue, because they are dependent on investment income. A pricing strategy that reduces total crashes could reduce profits if regulators or market competition required a comparable reduction in premiums. Although there are potential financial and marketing benefits, these longer-term saving which would have to offset an individual insurer’s short-term revenue losses and risks. It is therefore not surprising that few insurers have implemented distance-based pricing.
This type of pricing has never been used before.
Some vehicle insurance is already distance-based: rates for fleets and commercial vehicle coverage are often based on mileage, and mileage is included as a rating factor by many vehicle insurers. There is nothing unique about pricing based on use. Prices for most goods are based on some measure of consumption, such as water and electric meters, and scales used to weigh food. Vehicle rentals and leases incorporate odometer-based price components. Vehicle insurance is unusual for having pricing that allows unlimited consumption (i.e., vehicle mileage).
Odometer auditing would be an invasion of privacy.
Odometer readings are already collected during vehicle servicing, vehicle sales and crash investigations. Odometer readings are even sold by private companies to used vehicle purchasers. Odometer auditing simply standardizes the collection of this information. Odometer auditing does not identify when or where a vehicle has been driven, or provide any other information that could be considered private. Odometer auditing would provide significant additional consumer benefits.
Table 7 Obstacles and Potential Solutions
|
Obstacle |
Potential Solutions |
|
Uncertainty. Insurance rates are based on claim cost data collected by the vehicle-year. Although there is ample evidence that mileage is an important risk factor, actuaries have insufficient data to know exactly how to calculate mileage-based premiums. |
Begin with a relatively small pilot project, using a basic prorated premium (i.e., current annual premiums divided by average annual mileage for each rate class), with an extra 10-20% margin to account for uncertainty. Adjust this rate as needed as the pilot project provides data. |
|
Misunderstandings. Many objections to PAYD pricing reflect misunderstandings of the concept. Some people believe it refers to Pay-At-The-Pump (insurance coverage funded through a fuel sales surcharge), are unaware of its full potential benefits, or have exaggerated estimates of its costs. |
Educate stakeholders (policy makers, insurance professionals, insurance regulators, consumers) about PAYD, including how it would be implemented, and its real benefits and costs. |
|
Exaggerated number of losers. Some people object to PAYD because they believe it would harm many groups, such as rural drivers (PAYD, as recommended here, would only increase costs for rural motorists who drive more than the average for rural motorists) or businesses (premiums for business vehicles already reflect their relatively high mileage). |
Educate stakeholders about the full distribution of benefits from PAYD. To the degree that it is effective at reducing mileage and crash costs, PAYD should make far more people better off than are made worse off overall. Even high mileage drivers may benefit overall if they prefer owning multiple vehicles, and because they would benefit most from reduced traffic congestion, accident risk and exposure to pollution emissions. |
|
Data accuracy. PAYD requires accurate mileage data. Self-reported data is unreliable. |
Mileage data can be collected in many ways. The cheapest if for motorists to submit odometer readings, verified with occasional spot-checks. The most costly is to install GPS transponders in each participating vehicle. An intermediate approach, which may provide the optimal balance between accuracy and cost, is to certify vehicle service businesses (garages, oil change shops, and perhaps some insurance brokers) to perform odometer audits. Governments can certify these auditors and collect odometer readings in vehicle registration databases. |
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Regulatory constraints. Some insurance regulations discourage pricing reforms. For example, regulators often require insurers to provide data justifying rates, and some prohibit insurers from offering multiple rate structures. Regulations are complex and rate filings are costly (often costing a million dollars or more in data collection, analysis and paper works), which discourages small, innovative pilot projects. |
Educate insurance regulators concerning the merits of PAYD with respect to insurance regulatory objectives. Collect data showing the actuarial basis for PAYD. Work with regulatory agencies to address specific obstacles to innovation and small pilot projects. Identify jurisdictions that have suitably supportive regulatory policies. Pass legislation (as in Oregon and Texas) which specifically allows PAYD insurance pricing. |
|
Lack of incentive. Insurance companies currently perceive little incentive to implement innovative pricing options such as PAYD pricing. |
Educate insurance company officials concerning opportunities to profit from PAYD pricing (the first companies to offer this product should attract significant new business). Provide financial incentives, such as tax breaks (as Oregon now does). Pass laws requiring insurance companies to offer PAYD, at least as an option. Fund PAYD research programs and pilot projects. Favor insurance companies that offer PAYD pricing in government contracts. |
This table lists various obstacles to PAYD pricing, and potential solutions to them.
|
As a man was driving down the freeway when his car phone rang. Answering, he heard his wife’s voice urgently warning him, “Herman, I just heard on the news that there’s a car going the wrong way on route 290. Please be careful!” “Heck,” said Herman, “It’s not just one car. It’s hundreds of them!” |
Best Practices
· Pay-As-You-Drive insurance should be considered as a way to increase consumer fairness and affordability, to reduce uninsured driving, as a traffic safety strategy, and as a way to reduce energy consumption, pollution emissions and traffic congestion.
· State or provincial governments can certify odometer auditors, to make mileage data easily available.
· PAYD pricing should be carefully planned to insure that implementation is convenient to motorists and that vehicle use data collection is efficient and accurate.
· PAYD Insurance can be implemented as a consumer option, initially as a small pilot project, and if no major problems are encountered the program can expand until it is available to all motorists.
Examples and Case Studies
CAA MyPace (www.caamypace.com)
The Canadian Automobile Association’s MyPace policies offer substantial (20-50%) savings for vehicles driven less than 10,000 annual kilometers in Ontario. Vehicle use is measured using a small in-vehicle device that reports odometer readings through a smartphone. Motorists are billed automatically for each 1,000 kilometers driven.
Coverbox (www.coverbox.co.uk)
Coverbox is an Internet-based brokerage firm that uses in-vehicle instruments to calculate insurance and prevent theft. Policy mileage rates vary depending on how far and when a vehicle is driven. Motorists pay premiums based on their projected future driving patterns. At the end of the policy term the rates are adjusted to reflect actual driving during that period; motorists receive a rebate if their actual mileage is less than projected or pay for any additional mileage charge needed. Several insurance companies including Co-operative, Allianz and Equity Red Star offer Coverbox PAYD policies.
Real Insurance PAYD (www.payasyoudrive.com.au)
Real Insurance has offered Pay-As-You-Drive vehicle insurance in Australia since 2008. Motorists report their odometer reading at the beginning of the policy term and purchase a certain number of kilometers. Odometer readings are verified if there is a claim, giving motorists an incentive to be accurate (false readings void coverage). Any unused kilometers are either refunded if motorists cancel or don’t renew (upon verification of vehicle odometers if requested by the company) or carried over to the next policy. If kilometers exceed prepayment the policy only provides basic coverage (liability, fire and theft). Policy holders can easily purchase additional kilometers. This program was awarded Australia’s Cheapest Car Insurance award by Money Magazine.
Progressive MyRate (www.progressive.com/MyRate/myrate-default.aspx)
Progressive Insurance’s MyRate policies provide discounts based on based on how much, when and how a vehicle is driven. Cars that are driven less, at less risky times, and in less risky ways can receive large discounts. Vehicle travel is tracked using a device that is plugged into their vehicle's on-board diagnostic port.
Polis Direct Kilometre Policy (www.kilometerpolis.nl)
Polis Direct, a major Dutch insurance company, has offered their “Kilometre Policy” since 2004. Per-kilometer premiums are calculated by dividing current premiums by the current policy’s maximum annual kilometers, which is typically 20,000, so a motorist who currently pays €500 for up to 20,000 kilometers would pay €0.025. At the end of the policy term the motorist receives a rebate of up to 50% of their premium for lower mileage, or their premiums can increase up to 50% if they drive more than the current maximum. Mileage is calculated using odometer readings collected during annual vehicle inspections, called the “national car card,” and recorded in the national vehicle registration database.
PAY PER K Coverage (www.nedbank.co.za)
Nedbank, a major South African insurer, offers Pay Per K vehicle insurance which bases premiums on monthly mileage. It monitors month vehicle travel using a NedFleet card that is linked to the vehicle’s comprehensive motor insurance. Each time the vehicle is refueled an odometer reading is recorded and used to calculate a monthly insurance bill. Monthly premiums fluctuate depending on the distance traveled in the preceding month, and are debited monthly in arrears.
Aryeh (www.aryeh.co.il)
Aryeh offers PAYD insurance in Israel. Premiums are billed monthly using mileage data collected by small wireless transmitters in vehicles and receivers at fuel pumps, offered by PAZ (www.pazomat.co.il), the country’s largest petroleum company. About 200,000 vehicles (about 15% of all vehicles, and a larger portion of company and government agency cars) already have the device installed for automatic payment.
California Department of Insurance PAYD (www.insurance.ca.gov/0400-news/0100-press-releases/0070-2008/release089-08.cfm)
After extensive public consultation the California Department of Insurance introduced a new, green auto insurance option available for California consumers not later than fall 2009. Pay-as-you-drive auto insurance is a way for motorists to more accurately pay for the coverage they need, by linking their premium more closely with the number of miles they drive. This incentive is intended to help reduce greenhouse gases and vehicle accidents.
"I am thrilled to pave the way for California drivers to obtain insurance that is more environmentally friendly and more accurately reflects driving habits," said Commissioner Poizner." As a strong advocate of healthy market competition and a healthy environment, I am especially pleased to encourage this kind of innovation and additional options for consumers."
The Environmental Defense Fund estimates that if 30% of Californians participate in this voluntary coverage, California could avoid 55 million tons of CO2 between 2009 and 2020, which is the equivalent of taking 10 million cars off the road. This would save 5.5 billion gallons of gasoline and save Californians $40 billion dollars in car-related expenses. Additionally, the California Air Resources Board has recommended the adoption of pay as you drive as one of the means to meet future climate change gas reduction targets.
Under the new regulations, consumers could verify mileage by odometer readings, automotive repair records, or a technological device used to collect mileage data. The regulations explicitly prohibit insurance companies from requiring policyholders to participate in a pay-as-you-drive program.
Radio Program Supports PAYD (www.marketplace.org/shows/2003/02/25_mpp.html)
Public Radio’s Marketplace daily magazine covering business and economic issues featured a story about PAYD insurance 25 February 2003. During the broadcast, Yale University professors Barry Nalebuff and Ian Ayres (www.whynot.net) argued that the current insurance system penalizes too many people who drive less than the average number of miles per year. As an alternative to the current insurance system, the two professors advocated for PAYD insurance, saying that it is one way to reduce the inequity between high and low mileage drivers and encourage more efficient vehicle use.
"Pago Por Uso" (www.jovenesdesiguales.com)
“Pago por Uso”
(“Pay For Use”) is a PAYD insurance policy designed specially for younger
drivers, which bases rates on when and where a vehicle is driven, using
on-board telematics. It is offered by Mapfre (www.mapfre.com), the largest Insurance
Company in Spain.
Aioi Insurance (www.ioi-sonpo.co.jp) Introduces “PAYD” Insurance
The Aioi Insurance Company in Japan has developed a PAYD insurance program that collects data from a device in a customer’s car. In recent years, automobile manufacturers have been leveraging this technology to create a service in which information is sent and received via a telematics device installed inside the vehicle. This system calculates mileage per month, giving customers the opportunity to pay premiums based upon their own driving habits, much the same as phone charges, which ultimately provides fairer and potentially lower insurance rates.
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Use Of Mileage As Rating Factor Decreasing, But Accurate By Phil Gusman, NU Online News Service, 9 April 2009
As some companies eliminate or reduce the significance of annual mileage as a rating factor, a new study reports a “strong correlation” between miles driven and auto insurance claim costs.
Quality Planning (www.qualityplanning.com), a unit of Insurance Services Office, that validates policyholder information for auto insurers, said it studied over 450,000 insurance policies and “found a significant difference in average claim costs between high and low annual mileage groups.”
Quality Planning said the lowest annual mileage group, which drives from zero to 3,000 miles, had 44 percent fewer claims as compared to the average, while the highest annual mileage group, those who drive more than 20,000 miles, had 28 percent more claims than the average. Despite this, Quality Planning said some auto insurance companies are eliminating annual mileage as a rating factor.
Bob U'Ren, senior vice president at Quality Planning, said data verifying the decrease in use of annual mileage as a rating factor was provided by insurers that work with Quality Planning, and includes both large and small companies. Additionally, many insurers have broad mileage bands that prevent them from offering competitive pricing based on mileage, Quality Planning said.
The study noted that within broad mileage ranges, for example, zero to 7,500 miles, loss costs can be 12 to 15 percent higher for drivers at the high end of the mileage band, and 20 to 25 percent lower for drivers at the low end of the mileage band, as compared to the average for that range. “Consumers justifiably believe that if they’re driving less, they should pay less for their insurance, and indeed the claims statistics support that,” said Dr. Raj Bhat, president of Quality Planning. “Our study shows that those insurers who fine-tune their premium to a customer’s driving habits will be better positioned to offer competitive pricing.”
Robert Passmore, director of personal lines for the Property Casualty Insurers Association of America (PCI), said mileage is an important factor, but he pointed to problems insurers have with verifying miles driven. For example, “Pay As You Drive” insurance products, in which rates are based on miles driven, sometimes use GPS devices to monitor miles driven, but Mr. Passmore noted that these devices have raised privacy concerns in some states. He said consumers should know up front what such devices track, how that information is used, and how the information is protected from misuse.
Quality Planning spokesman Tim Cox, said there are other ways to track mileage besides GPS devices. Quality Planning, for example, uses methods such as car service databases to compile information, he said. When a car is serviced or is taken for an oil change, the auto shop may record the mileage. Companies can harvest information from those databases to determine mileage readings, Mr. Cox said. Mr. Passmore said as tools are developed that provide insurers with accurate information, and if those tools are approved for use, then insurers can use mileage as a rating factor in a more refined way.
For the survey, Quality Planning sampled 459,599 single-vehicle policies from multiple carriers during 2003 to 2006. The claim data from that period, the company said, was used to evaluate policy period claim costs. The annual mileage estimates were obtained from Quality Planning’s RISK:check process, which the company said uses statistical estimates and odometer readings, when available. |
Dutch PAYD Field Experiment (Bolderdijk and Steg 2011)
A Dutch study tested the effects of financial incentives to avoid exceeding speed limits, reduce mileage and avoid driving during weekend nights on 141 participants. Participants were randomly assigned to be either in incentive or control groups. The experiment comprised four phases, pre-measurement, intervention phase 1, intervention phase 2, and post-measurement, each lasting two months. During pre-measurement (November – December 2007) and post-measurement (May – June 2008), participants’ driving behavior was monitored, but had no financial consequences. During the intervention phases, participants in the incentive group could earn a reward for adapting their driving behavior (a discount on their insurance premium of maximally 50 Euro per month), and received feedback on their driving behavior via a custom webpage. Participants in de control group did not receive an incentive and feedback. They were told they would receive 200 Euros by the end of the experiment, regardless of their driving behavior. The monthly 50 Euros discount was divided into three components: 30 Euros was designated as a reward for keeping the speed limit, 15 Euros for reduced mileage, and 5 Euros for avoiding driving during weekend nighttime hours.
For each of the four phases, the percentage of speeding was calculated based on the weekly distance travelled at a speed 6% over posted speed limit. The study found the frequency of speeding declined for the experimental group during the financial incentive phase and increased when the financial incentive was removed. These effects were modest but statistically significant. The control group did not display these changes. These results suggest that financial incentives can reduced overall speeding, but only as long as the incentive was in place. The study found no comparable impact on travel volume (mileage and nighttime driving). This can be explained by the larger financial incentive for reduced speeding than for reducing vehicle travel. It is also possible that reducing vehicle travel requires more planning and therefore more effort than changing speed.
Italian Insurance Companies Introduce PAYD Innovations
The Italian insurance company SARA (www.sara.it) offers a per-day insurance policy, in which customers can send a text message indicating that they will drive the next day (or the next week) and in return receive a code which provides coverage for that period. Other insurers, including UNIPOL (www.unipolonline.it) employ in-vehicle telematics units mainly for reasons of post-crash services (like airbag deployment call, or liability determination). This equipment can provide PAYD pricing, as demonstrated at www.octotelematics.com. 70,000 of those units have been sold in 2005 and approximately 1,000 plus are installed in Italian cars each month for UNIPOL´s services.
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Premium Leakage Cost Auto Insurers $15.9 Billion in 2008: Analysis by Analytics Expert Quality Planning Concludes Auto Insurers Could Stem Losses by Better Analysis and More Frequent Updates of Policyholder Information (www.pr-inside.com/print1677365.htm), 20 January 2010
Quality Planning (www.qualityplanning.com), a Verisk Analytics company that validates policyholder information for auto insurers, has released its annual premium rating error report. The report quantifies the errors and discrepancies that result in auto insurers undercharging policyholders. For 2008, Quality Planning estimates that the private passenger auto insurance industry missed $15.9 billion in revenue simply because of policyholder misinformation. In 2007, the company calculated $16.1 billion in missed auto insurance premium revenues. Although the 2008 figure is down slightly from the previous year, it is still almost 10 percent of the total $161.7 billion in personal auto premium written.
"The year 2008 saw a slight decrease in auto premium leakage over 2007. Most of this decrease is accounted for by a reduction in miles driven, which is attributable to the cumulative effects of a serious economic recession and sky-high gasoline prices — above $4.00 — in the summer of 2008," said Dr. Raj Bhat, president of Quality Planning. "Premium leakage happens. It's an undesirable, yet inevitable, aspect of auto underwriting. What insurers should understand, though, is that getting on top of the premium leakage problem is equivalent to reducing their combined ratio by three to five points."
Mileage, both annual and commute, was the most misrepresented rating factor again in 2008 and accounted for a loss of more than $3.0 billion in premium. Two other factors — unrated operators (household drivers not declared on the policy) and driver characteristics and discounts (which include inaccuracies such as driving experience, age, marital status, student discounts, affinity group membership, and misrepresentation of driver identity) — accounted for $2.6 billion and $2.3 billion, respectively.
Quality Planning recorded an upward trend in the misreporting of vehicle garaging address and of youthful drivers. The trend was most striking in large urban areas, where the actual location of where a vehicle is garaged overnight can substantially affect premium cost. Nationwide, 1 to 2 percent of all policies written include an unrated operator, who is most often a high-premium younger driver. Rated properly, those policies account for more than $2 billion of annual premium leakage.
The report, "Auto Insurance Industry Leaves Billions on the Table," can be found online at the company's website, www.qualityplanning.com. The report aggregates and summarizes audit results of more than four million policies from multiple carriers, and draws from business written in all states except Hawaii and Alaska. The sample includes substandard to preferred books of business, all distribution channels, and national and regional carriers (1). Sample results were weighted to reflect the total national private passenger auto line.
The 2008 report includes a detailed analysis that distinguishes between vehicle rating errors (mileage, usage, type of vehicle, and location) and driver rating errors (driving experience and driving record) and shows how different categories of rating error contribute to overall premium rating error. Quality Planning urges auto insurers to improve their analysis of policyholder-rating data to identify and correct flawed information — steps that could have a positive effect on overall corporate profitability. |
References and Resources for More Information
Michelle Babiuk (2008), Distance Based Vehicle Insurance: Actuarial and Planning Issues, B.A. (Hon), Masters Thesis, Community and Regional Planning, University of British Columbia; at http://circle.ubc.ca/bitstream/handle/2429/752/ubc_2008_spring_babiuk_michelle.pdf.
J.W. Bolderdijka, J. Knockaertb, E.M. Stega and E.T. Verhoefb (2010), “Effects of Pay-As-You-Drive Vehicle Insurance on Young Drivers’ Speed Choice: Results of a Dutch Field Experiment,” Accident Analysis and Prevention, Vol. 43, pp. 1181–1186.
Jan Willem Bolderdijk and Linda Steg (2011), Pay-As-You-Drive Vehicle Insurance as a Tool to Reduce Crash Risk: Results so Far and Further Potential, Discussion Paper No. 2011-23, Prepared for the Roundtable on Insurance Costs and Accident Risks, 22-23 September 2011, Paris, International Transport Forum (www.internationaltransportforum.org); at www.internationaltransportforum.org/jtrc/DiscussionPapers/DP201123.pdf.
Jason E. Bordoff and Pascal J. Noel (2008), Pay-As-You-Drive Auto Insurance: A Simple Way to Reduce Driving-Related Harms and Increase Equity, The Brookings Institution (www.brookings.edu); at www.brookings.edu/research/pay-as-you-drive-auto-insurance-a-simple-way-to-reduce-driving-related-harms-and-increase-equity.
Jason E. Bordoff and Pascal J. Noel (2008b), The Impact of Pay-As-You-Drive Auto Insurance in California, The Brookings Institution (www.brookings.edu); at www.brookings.edu/research/the-impact-of-pay-as-you-drive-auto-insurance-in-california.
Patrick Butler (2000), Why the Standard Automobile Insurance Market Breaks Down in Low Income Zip Codes, Report to the Texas House Committee on Insurance, Cents Per Mile For Car Insurance (www.centspermilenow.org); at www.centspermilenow.org/633b-4522.pdf.
Cambridge Systematics (2006), Mileage-Based User Fee Demonstration Project: Pay-As-You-Drive Experimental Findings, Final report 2006-39A, Minnesota Department of Transportation (www.lrrb.org); at www.lrrb.org/pdf/200639A.pdf.
Cambridge Systematics (2009), Moving Cooler: Transportation Strategies to Reduce Greenhouse Gas Emissions (www.movingcooler.info), Urban Land Institute and various other organizations; report at http://commerce.uli.org/misc/movingcooler.pdf; summary at http://commerce.uli.org/misc/movingcoolerexecsum.pdf.
Cents Per Mile For Car Insurance (www.centspermilenow.org) is a website that promotes “cents per mile” vehicle insurance as allowed by legislation passed in the state of Texas in 2001.
Stephen J. Dubner and Steven D. Levitt (2008), “Freakonomics: Not-So-Free Ride,” New York Times, 20 April 2008, (www.nytimes.com/2008/04/20/magazine/20wwln-freakonomics-t.html).
Aaron S. Edlin (2003), “Per-Mile Premiums for Auto Insurance,” Economics for an Imperfect World: Essays In Honor of Joseph Stiglitz, MIT Press; at: http://works.bepress.com/aaron_edlin/28.
Aaron S. Edlin and Pinar Karaca Mandic (2006), “The Accident Externality from Driving,” Journal of Political Economy, Vol. 114, No. 5, pp. 931-955; at http://works.bepress.com/aaron_edlin/21.
ETAAC (2008), Recommendation of the Economic and Technology Advancement and Advisory Committee (ETAAC), Economic and Technology Advancement Advisory Committee, California Air Resources Board (www.arb.ca.gov); at www.arb.ca.gov/cc/etaac/ETAACFinalReport2-11-08.pdf.
Joseph Ferreira Jr. and Eric Minikel (2010), Pay-As-You-Drive Auto Insurance In Massachusetts: A Risk Assessment And Report On Consumer, Industry And Environmental Benefits, by the Department of Urban Studies and Planning, Massachusetts Institute of Technology (http://dusp.mit.edu) for the Conservation Law Foundation (www.clf.org); at www.clf.org/our-work/healthy-communities/modernizing-transportation/pay-as-you-drive-auto-insurance-payd.
Joseph Ferreira Jr. and Eric Minikel (2012), “Measuring Per Mile Risk for Pay-As-You-Drive Automobile Insurance,” Transportation Research Record 2297, Transportation Research Board (www.trb.org), pp. 97-103, http://pubsindex.trb.org/view.aspx?id=1129619.
Keri Funderberg, Michael Grant and Ed Coe (2003), “Changing Insurance One Mile At A Time,” Contingencies (www.contingencies.org/novdec03/changing.pdf), Nov./Dec., pp. 34-38.
Allen Greenberg (2009), “Designing Pay-Per-Mile Auto Insurance Regulatory Incentives,” Transportation Research D, Volume 14, Issue 6, August, pp. 437-445; earlier version at www.vtpi.org/07-3457.pdf.
Allen Greenberg (2013), “Pay-As-You-Drive-And-You-Save Insurance: Potential Benefits and Issues,” CIRP Newsletter, Center for Insurance Policy and Research (www.naic.org), pp. 18-22.
Allen Greenberg and Jay Evans (2017), Comparing Greenhouse Gas Reductions and Legal Implementation Possibilities for Pay-to-Save Transportation Price-shifting Strategies and EPA’s Clean Power Plan, Victoria Transport Policy Institute (www.vtpi.org); at www.vtpi.org/G&E_GHG.pdf; slideshow at http://bit.ly/2GwKI03.
Ginger Goodin, Richard T. Baker and Lindsay Taylor (2009), Mileage‐Based User Fees – A Path Toward Implementation; Phase 2: An Assessment of Institutional Issues, UTCM 09-39-07, Texas Transportation Institute (http://utcm.tamu.edu); at http://utcm.tamu.edu/publications/final_reports/Goodin_inst_09-39-07.pdf.
Robin Harbage (2009), Usage Based Insurance-From Theory to Practice, Casualty Actuarial Society (www.casact.org); at www.casact.org/education/rpm/2009/handouts/harbage2.pdf.
Winston Harrington and Ian W.H. Parry (2005), “Pay-As-You-Drive Car Insurance,” New Approaches on Energy and the Environment, Resources for the Future (www.rff.org); at www.rff.org/Documents/08_New_Approaches/09-Pay-As-You-Drive-for-Car-Insurance.pdf.
Greig Harvey and Elizabeth Deakin (1998), “The STEP Analysis Package: Description and Application Examples,” Appendix B, in Technical Methods for Analyzing Pricing Measures to Reduce Transportation Emissions, USEPA, Report #231R98006 (www.epa.gov); at www.epa.gov/otaq/stateresources/policy/transp/tcms/anpricng.pdf.
HIPA (2010), Integrating PAYD Insurance and Mileage-based Road User Fees: Workshop On Integrating PAYD Insurance And Mileage-Based Road User Fees, Humphrey Institute of Public Affairs (www.umn.edu); at www2.hhh.umn.edu/uthinkcache/slpp/regionalities/PAYDInsuranceMNWorkshopSummary.pdf.
Todd Litman (1997), “Distance-Based Vehicle Insurance as a TDM Strategy,” Transportation Quarterly, Vol. 51, No. 3, Summer 1997, pp. 119-138; at www.vtpi.org/dbvi.pdf.
Todd Litman (2001), Distance-Based Vehicle Insurance Feasibility, Benefits and Costs: Comprehensive Technical Report, VTPI (www.vtpi.org); at www.vtpi.org/dbvi_com.pdf.
Todd Litman (2004), Pay-As-You-Drive Pricing For Insurance Affordability, VTPI (www.vtpi.org); at www.vtpi.org/payd_aff.pdf.
Todd Litman (2005), “Pay-As-You-Drive Pricing and Insurance Regulatory Objectives,” Journal of Insurance Regulation, Vol. 23, No. 3, National Association of Insurance Commissioners (www.naic.org), Spring; at www.vtpi.org/jir_payd.pdf.
Todd Litman (2007), Pay-As-You-Drive Pricing in British Columbia: Backgrounder, VTPI (www.vtpi.org); at www.vtpi.org/paydbc.pdf.
Todd Litman (2007), Win-Win Emission Reduction Strategies: Smart Transportation Strategies Can Achieve Emission Reduction Targets and Provide Other Important Economic, Social and Environmental Benefits, VTPI (www.vtpi.org); at www.vtpi.org/wwclimate.pdf.
Todd Litman (2008), Pay-As-You-Drive Insurance: Recommendations for Implementation, VTPI (www.vtpi.org); at www.vtpi.org/payd_rec.pdf.
Todd Litman (2011), Pricing for Traffic Safety: How Efficient Transport Pricing Can Reduce Roadway Crash Risk, Victoria Transport Policy Institute (www.vtpi.org); at www.vtpi.org/price_safe.pdf.
Todd Litman (2011), Pay-As-You-Drive Vehicle Insurance in British Columbia, Pacific Institute for Climate Solutions (www.pics.uvic.ca); at http://pics.uvic.ca/sites/default/files/uploads/publications/WP_PAYD_Insurance_May2011.pdf.
Todd Litman (2012), “Pricing for Traffic Safety: How Efficient Transport Pricing Can Reduce Roadway Crash Risks,” Transportation Research Record 2318, pp. 16-22 (www.trb.org); at www.vtpi.org/price_safe.pdf.
Todd Litman (2017), Pay-as-You-Drive Insurance in BC: Backgrounder, Victoria Transport Policy Institute (www.vtpi.org); at http://vtpi.org/PAYD%20in%20BC%20Backgrounder.pdf.
Todd Litman (2018), A New Traffic Safety Paradigm, Victoria Transport Policy Institute (www.vtpi.org); at www.vtpi.org/ntsp.pdf.
Todd Litman and Steven Fitzroy (2005), Safe Travels: Evaluating Mobility Management Traffic Safety Impacts, VTPI (www.vtpi.org); at www.vtpi.org/safetrav.pdf.
MetroMile (www.metromile.com) began offering policies in Oregon in 2012. It uses an electronic device that plugs into a vehicle data port to track daily mileage which is used to calculate monthly insurance bills. The company estimates that most motorists who drive less than 10,000 annual miles will save with this policy.
MiDriveStyle (www.miway.co.za/midrivestyle) by MiWay Insurance in South Africa uses a small tracking device to calculate car insurance premiums based on the customers individual driving style, taking into account when, where, how far, and how a vehicle is driven (including acceleration, deceleration, speeding and swerving).
Evan Mills (2009), From Risk to Opportunity: Insurer Responses to Climate Change, Ceres, Investors and Environmentalists for Sustainable Prosperity (www.ceres.org); at www.ceres.org/Document.Doc?id=417. Also see, Insurance in a Climate of Change – Bibliography (http://insurance.lbl.gov/bibliography.html).
Salvador Minguijon (2007) PAYD Blog (http://payasyoudrive.wordpress.com).
Asher Meyers (2015), Is Usage-Based Auto Insurance the Gas Tax You’ve Been Waiting for?, Streetblog (http://la.streetsblog.org); at http://la.streetsblog.org/2015/03/05/is-usage-based-auto-insurance-the-gas-tax-youve-been-waiting-for.
NCTCOG (2008), Pay As You Drive (PAYD) Insurance Pilot Program, Progressive County Mutual Insurance Company and the North Central Texas Council of Governments (www.nctcog.org); at www.nctcog.org/trans/air/programs/payd/index.asp; Phase 1 Analysis: Texas Mileage Study: Relationship Between Annual Mileage and Insurance Costs – December 2005 (www.nctcog.org/trans/air/programs/payd/PhaseI.pdf); Phase 2 Final Project Report (www.nctcog.org/trans/air/programs/payd/FinalPAYDReport_11-05-2008.pdf).
NMA (2007), NMA’s Position on Auto Insurance, National Motorists Association (www.motorists.org/insurance).
Ian W. H. Parry (2004), “Comparing Alternative Policies to Reduce Traffic Accidents,” Journal of Urban Economics, Vol. 54, No. 2 (www.elsevier.ocm/locate/jue), Sept. 2004, pp. 346-368.
Progressive (2007), Pay As You Drive (PAYD) Insurance Pilot Program; Phase 2 Mid-Course Project Report, Progressive County Mutual Insurance Company, in cooperation with the Texas Department of Transportation and the U.S. Department of Transportation, Federal Highway Administration, and Federal Transit Administration.
Real Insurance Pay As You Drive Blog (http://payasyoudriveblog.blogspot.com) provides information on Pay-As-You-Drive car insurance in Australia.
Dimitrios I. Tselentis, George Yannis and Eleni I. Vlahogianni (2016), Innovative Insurance Schemes: Pay As/How You Drive, presented at 6th Transport Research Arena, Transportation Research Procedia 14, pp. 362 – 371; at http://bit.ly/2iWw7nz.
USDOT (2010), Transportation's Role in Reducing U.S. Greenhouse Gas Emissions: Volume 1, Report to Congress, U.S. Department of Transportation (www.dot.gov), at http://ntl.bts.gov/lib/32000/32700/32779/DOT_Climate_Change_Report_-_April_2010_-_Volume_1_and_2.pdf.
William Vickrey (1968), “Automobile Accidents, Tort Law, Externalities and Insurance: An Economist’s Critique,” 33 Law and Contemporary Problems, pp. 464-470; at www.vtpi.org/vic_acc.pdf.
Wikipedia (2009), “Usage-Based Insurance,” Wikipedia (http://en.wikipedia.org/wiki/Usage_based_insurance).
Steve Winkelman (2007), Travel Demand and Urban Form: Lessons and Visions, Asilomar Conference on Transportation and Climate Policy August 22, 2007; at www.its.ucdavis.edu/events/outreachevents/asilomar2007/presentations/Day%201%20Session%203/Winkelman%20Intro%20to%20Asilomar%20Demand%20Session%20(8.22.07).pdf.
This Encyclopedia is produced by the Victoria Transport Policy Institute to help improve understanding of Transportation Demand Management. It is an ongoing project. Please send us your comments and suggestions for improvement.
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