2008 Update: The New York Times magazine wrote about pay as you drive for the Earth Day issue; and PAYD is coming to Cascadia!

What is pay-as-you-drive auto insurance?

• Car insurance is currently sold like an all-you-can-eat meal plan: once you've made the purchase, you may as well gorge. Traditional low-mileage discounts don't come close to capturing the difference in accident risk between high- and low-mileage drivers; those who drive less are penalized.
• Pay-as-you-drive insurance would make buying car insurance more like buying gasoline: the less you drive, the less you pay. Insurers would offer motorists a per-mile rate that would also incorporate existing rating factors, such as a driver's crash history or geographic location.
• Evidence suggests that low-mileage drivers are a large untapped market.

Benefits

• For consumers: They would have access to more affordable insurance and would have more control over their insurance costs.
• For society: Initial research estimates that pricing insurance by the mile could cut total driving by 5 to 15 percent, which would slash the huge environmental impacts of the automobile and lessen the number of crashes and claims. A 10 percent reduction in driving is estimated to result in a 17 percent reduction in crashes.
• For taxpayers: Reduced driving would also save money on roadwork. Oregon Environmental Council, a nonprofit group working to pilot PAYD in Oregon, estimates that PAYD insurance could trim the state's road-related costs substantially over the next 20 years.
• For insurers: They may see an increased market share and a growing reputation as an innovative, customer-oriented, and socially responsible company. They may also have fewer claims.
  

PAYD in the Northwest

• Oregon: Oregon passed legislation in 2003 to encourage insurers--through a tax credit--to offer pay-as-you-drive insurance. Oregon Environment Council (OEC) sponsored the bill and is seeking an insurance partner for a 24-month trial of PAYD and building a database of consumers interested in PAYD.
• Washington: A PAYD pilot project will soon start in Washington State, under the sponsorship of groups including Sightline, King County Metro, Seattle City Light, and Climate Solutions. Read about it here.
  

Other promising PAYD efforts

• National insurance association: Groups including EPA, Environmental Defense, and the Conservation Law Foundation are working to form a national cooperative that would work with an insurer to offer steep discounts for low-mileage drivers--essentially, a step toward PAYD. The insurer could increase market share without creating new filings. Discounts would come via traditional rating mechanisms. In Massachusetts, the Environmental Insurance Agency is also working toward PAYD.
• Pilot projects: In the United Kingdom, Norwich Union has become the first insurer to offer PAYD. Other pilot projects are being launched in Massachusetts (by Plymouth Rock) and Georgia, with funding from the Federal Highway Administration's Value Pricing Program. Progressive Insurance Company piloted pay-as-you-drive insurance in Texas, using global positioning satellite technology.
• EPA: The Environmental Protection Agency is developing a voluntary government-industry partnership to offer recognition and support to insurance companies who offer PAYD.

More resources and sources

• Victoria Transport Policy Institute summary about PAYD, March 2007
• Recent summary (on our weblog) of PAYD developments, May 2005
• Grist Magazine, Driving a hard bargain, October 2003
• Pay-as-you-drive in Europe: Contact Salvador Minguijón Pérez at http://www.salvador-minguijon.es
• Excerpted from This Place on Earth 2001: Guide to a Sustainable Northwest (see pdf for full details and endnotes)