Here’s a little something I’ll be keeping an eye on: Japanese insurance company Aioi has started to offer pay-by-the-mile car insurance. (See page 2 of this pdf.) This is an especially nifty development, since it means that Aioi will be working out some kinks in the technology (the company will verify mileage with a device installed in policyholders’ cars) which might help PAYD make the leap across the Pacific.
As we’ve said many times, pay-as-you-drive insurance (or PAYD) offers huge advanatages. Overall, the system is fairer than the all-you-can-drive insurance that most of us buy: people who don’t drive much tend to incur less crash risk, and they wind up subsidizing people who do a lot of driving. Even the policies that give a little price break for low-mileage drivers still make the people who drive the least subsidize everyone else. And not only is PAYD fairer to low-mileage drivers, it also creates an automatic disincentive for extra driving: just as an all-you-can-eat buffet makes it more likely that you’ll gorge yourself, all-you-can-drive insurance makes it more likely that you’ll drive more than your really need.
We’ve long been hoping that some auto insurer will offer PAYD in our part of the world. In 2003, Oregon even passed tax incentives to sweeten the pot. But so far, no company has taken the bait. And that’s pretty understandable—PAYD suffers from the "first mover" problem, in that the first company to offer PAYD not only has to create a new market for this kind of insurance, it also has to work out all of the technical kinks in tracking and verifying policyholders’ mileage.
But if US insurers can build on Aioi’s technology, much of the technological part of the first mover problem gets solved. And if Aioi can figure out how to market PAYD in Japan, it just might convince US insurers that there might be the same kind of business opportunity on this side of the Pacific. Neat!