Over at The Tyee this morning, you’ll find an editorial piece from me and Alan arguing that British Columbia should finally get around to adopting Pay-As-You-Drive car insurance. Maybe it sounds like a small thing, but it’s a policy with a lot of leverage.
To wit:
Car insurance in British Columbia is like an all-you-can eat buffet: once you’ve made the purchase, you may as well gorge. Mileage is correlated with risk; the more you drive, the more likely you’ll crash. But unlike a driver’s age and safety record, insurers have historically underweighted mileage in their rating formulas…
Essentially, pay-as-you-drive makes buying car insurance like buying gasoline: drive less, buy less.
In a nutshell, PAYD is a smart low-cost solution that reduces energy use and saves money at the same time. And it’s a policy that is particularly well-suited to British Columbia, though the province has been frustratingly slow to try it out.
You can read our full argument here.
cfvua
HEllo Eric.ICBC does indeed offer this type of rating to a few commercial fleets in the province. It is a grand-fathered deal with no opportunity for renewal if the policy is cancelled. Recently they have raised the per Km rate to equal or exceed the premium that would be paid for a yearly renewal. Thereby extinguishing any value to the insured. This is called a “Fleet reporting policy” .ICBC is trying to eliminate any of this type of rate structure and I am not sure why, as it does keep you from driving your vehicles unneccessarily, personal or fleet. If you need further information regarding this please call me at 250 787 2998 or email. I would like to see the plan expanded and looked at with an actuary that recognizes that risk is mainly when the vehicle is moving or being used. Sell fire ane theft on a yearly basis or if it is deemed that more vehicles burn while travelling include it in the mileage rate. With commercial vehicles that are rarely stolen, the per kilometer rate is the only true guage of exposure to risk, as some high mile low revenue fleets have very bad safety records while other specialty low mile fleets have very good ratings. High miles=high risk and higher energy consumption.
Rod Smelser
If there is little real difference in accident probabilities as between driving 10,000 and 20,000 kms per year, why base insurance premiums on that criteria, other than for purely theoretical reasons and as a political gesture in the direction of discouraging auto usage. How much would the premiums actually affect the distances driven?
Steve
Sorry this doesn’t make a lot of sense to me. I drive for a living and rack up around 600km per week driving the streets of North and West van. I currently have a roadstar rating (no accidents for at least 7 yrs)in fact in 31yrs of driving i have had 1 accident 17yrs ago. I have a good friend who commutes daily downtown aprox. 30kms return and he smashes his car twice a year, mostly talking on his phone. My point is your article completely dismisses and discounts skill, driving conditions (rush hour or not) and paying attention to what your doing. It also ignores the fact that we currently pay substantially more per liter of fuel than he does in the U.S. most of which is carbon taxing in some form or another. Am I not already paying to drive more? Finally if this is such a great idea why doesn’t the “free market” in his neck of the woods already do this? Why not test it out where you live and get back to us with how it all works out.
Skot Nelson
I’ve wondered about this since I’ve been here (well nigh on 9 years now). I admit, in part, because I am a marginal driver. I have a car that’s paid for so I maintain it, and haven’t given it up…yet. I cycle most everywhere but live in a neighbourhood where that is sometimes challenging and car sharing options don’t exist (ZipCar, Car CoOp)Other have put forward the “I drive a lot, ergo my experience makes me a safe driver.” I wonder if there’s been any research to counter that argument? I’ve never found any, but than I haven’t dug that hard…In any case, rates would (I presume) be based on BOTH mileage AND driving history. Steve (above) would show his 17yrs of accident free and get a rate per mile which reflected it.Simply put, you could charge $.10 per km/yr, resulting in an “average” 20,000km driver getting a bill of $2,000/year. You could either then penalize “unsafe” drivers by adding a fee per accident or speeding ticket. Perhaps an accident would add $0.02 and a sufficiently high speeding ticket $0.01 for each ticket in the last five years.Whatever the specifics are (and I’m not basing these numbers on any reasearch, just providing hypothetical examples) the net effect is the same. Safe drivers pay less than unsafe drivers, but all drivers pay per kilometre.There’s another global picture (and I haven’t read the original article, but will, so this may be covered) of road maintenance. By driving more Steve may be gaining experience but he’s also doing more damage to the roads. As a crown owned insurer, ICBC can and should be contributing to road maintenance and charging by the mile would distribute that load more equitably. (Cyclists have a minimal impact on road maintenance needs, but under our current regime they pay the same as drivers through general taxation.)Sorry. That was long. I guess I’ve thought about the issue a bit.
Alan Durning
Rod Smelser,There’s a substantial increase in risk for driving 20,000 km rather than 10,000 km, within each “rate class.” A big body of actuarial evidence demonstrates this fact. Even ICBC’s own data demonstrate it.The historical problem has been getting reliable data on mileage per vehicle. That’s why insurers have underweighted mileage in their formulas for calculating premiums.Steve,A PAYD plan is NOT a flat per-mile charge that’s the same for all drivers. It still reflects your driving record and other proven predictors of accident risk. As a driver with a very good driving record, your per-mile rate would be much lower than average. Also, under the kind of opt-in PAYD system we propose for ICBC, you could choose to continue paying the old way, or you could try the PAYD way. It would be up to you.Finally, as we argued in the article, many other places are now “trying out” PAYD, as you suggested be done. It’s a better deal for almost everyone. Why shouldn’t BC get a chance to try it out to? It’s a benefit, not a cost, to the province.Skot Nelson,You anticipated my answer to Steve. But I disagree about ICBC and road-maintenance. It might make sense to ultimately move to road-maintenance paid by the mile, but I think it should be a separate charge, collected by the relevant public agency. There’s a legitimate argument to be had over whether fuel taxes or by-the-mile charges are a fairer way to cover roadwork. And my impression is that very few places are politically ready to consider changing the way they pay for road maintenance.But for insurance, PAYD can be added as a new option, open to those who prefer it, without changing anything for other motorists. And ICBC is in a perfect position to offer it.
Steve
Okay so the insurance reflects the experience of the driver and the where and when, fair enough. Why is this model fairer than the taxes and surcharges already in place to,well supposedly, pay for road repair and carbon offset. The more I consume the more i pay as it stands now, isn’t this just another tax in disguise? It seems to me as a Seattle based think tank you’d be more involved in your own region and country. Does Washington State tax fuel for road repair and carbon offset? You didn’t mention why the free market style of insurance you have in the U.S. doesn’t use this model. I would guess there’s no profit in it or they see it as unworkable. I guess i feel your encouraging us to be guinea pigs in this scheme and it’s just another way for the province to pry a few more dollars out of my wallet every month. I’m still trying to choke down the recent “carbon ” fuel tax (that apparently goes straight to general revenues) without passing it on to my customers. Part of the problem with ideas like this is once the revenue stream starts flowing there’s no stopping it and the money never, ever goes where they say. And finally it may be of benefit to the province but not for me as far as I’m concerned the province gets far more than their share now.
Steve
I’m beating around the bush, I’ll be blunt. Mind your own business we have a gas tax system in place and it’s reasonably fair. And really all of our combined well meaning carbon off setting ideas are completely undone every day by the American war machine. You and your think tank could do more to save the planet and green the Northwest by ending your wars than by meddling in the insurance industry in a foreign country. Then all of this talk and tax and effort would actually be worth something.
Skot Nelson
> Why is this model fairer than the taxes and surcharges already in place > to,well supposedly, pay for road repair and carbon offsetSimply put, the current model burdens all citizens not just those who drive. Even if I don’t own a car, I pay for road maintenance and other costs of a car obsessed culture through general taxation.Now…roads DO have a general benefit. Certainly as a citizen I’m benefiting from the economic (and cultural, and other) activity that rods have created and will continue to do for some time. There are others however—taxi drivers, commercial truckers, couriers—who benefit disproportionately, and don’t pay their “fair share.” These businesses are effectively being subsidized by even the non-car owning public.It’s a simple issue, Steve. Use public transit more and you pay less insurance. You could also try riding a bike. I do, but my car insurance bill doesn’t reflect the fact that I do as much mileage on my bike as I do on my car: about 6,000km per year.Sightline is not responsible for “the American war machine” so your last comment does little to help the issue at all. You’re just coming off as angry.
Steve
Well Skot, articles like this make me angry and dangling a red herring like use transit and bike more just makes it worse. In Vancouver every level of gov. is using fuel taxes to pay for roads, transit and carbon offset. We could just raise the fuel taxes until they reach a level that satisfies you. I.C.B.C. has a mandate to provide insurance for damages why muddy the water by adding road building? where’s the advantage? In Vancouver transit and biking are reasonable alternatives to a car but as soon as you leave the city it becomes more and more unworkable, service is spotty and rarely goes when and where you want. Won’t this idea unfairly punish otherwise green people who live outside the city and drive more but out of necessity, and on safer roads? I don’t see how we can have this discussion without talking about the elephant next door and their policies. This American institute would have us change our industry but can’t change the policies in their own city, state, country. Why should we be taking their advice? All of our efforts to be responsible clean living peaceful citizens of earth are completely overshadowed by the giant carbon spewing war machine next door. I’m not saying we couldn’t or shouldn’t do more to clean up and green up. I’m saying we’re making progress, we have a system in place to tax carbon use by the average person. why don’t they work in their own neck of the woods and call us when they’ve sorted it out and we’ll compare notes?
Eric de Place
Steve,You might take another read of our article in The Tyee. To clarify a couple of things: ** BC would not be a “guinea pig” for the policy. It’s already working—or being rolled out—in at least a half dozen countries, numerous US states, and Ontario. ** The main reason PAYD isn’t more widespread already is because technology has only recently allowed insurers to monitor mileage reliably and cheaply. That’s changing now. ** If you object to policy ideas from a US-based think tank, consider that PAYD is virtually a minted-in-BC idea. Todd Litman at the Victoria Transport Policy Institute is maybe the world’s most knowledgeable advocate for the policy and it’s been endorsed by both the Vancouver city council and the Greater Vancouver Regional District. ** The basic idea behind PAYD is simple fairness. The way auto insurance is now structured, low-mileage drivers effectively subsidize high-mileage drivers. That’s not fair and its not good public policy either.
Steve
Hi Eric, i don’t particularly object to a U.S. point of view and your points are well made. – You still haven’t mentioned why if it’s so fair your city and state haven’t adopted it or why a think tank in the U.S. cares how we finance our road system.- How is your proposal fairer or more efficient than our current fuel tax model that’s already in place & collecting revenue?- I don’t agree the technology is capable of fairly dealing with the kilometers driven. There are still millions of vehicles whose odometers are easily spoofed and your adding a layer of bureaucracy that will have to deal with such issues. The fuel tax currently in place can’t be spoofed and also charges a carbon levy on things like lawnmowers, chainsaws etc. Surely this model that encourages less use of fossil fuels while generating funds for roads and transit is more progressive than your proposal. It encourages not only less driving but also rewards fuel efficiency in all our various machines.- Auto insurance was never designed as a way to pay for our roads only us smashing into each other. Nothing I’ve read indicates why just upping the current fuel tax to cover actual costs (if they’re not being fairly covered now) of road repair etc. wouldn’t be quicker, easier and more effective.
Eric de Place
Steve, here’s a crack at answering your questions:** Washington is rolling out a pilot PAYD program right now. We’re written about it here: http://www.sightline.org/daily_score/archive/2007/03/29/pay-as-you-drive-pilot-in-washington. But it’s true that US insurance companies have been slow to seize on the opportunity presented by PAYD. Some other countries—UK, Japan, the Netherlands, etc—have done better. We’re working to change that.** As for why we care about public policy in BC, it’s because we take the focus of Sightline’s work to include BC, Washington, Oregon, and Idaho, and other parts of the Northwest. Over the years, we’ve found many profitable comparisons between policies in these jurisdictions. Auto insurance appears to be one of the few places where BC lags, which is interesting because the province would be exceptionally well-suited to its implementation.** PAYD isn’t designed to compete with or replace other policies that govern fuel, carbon, roads, etc. It’s simply a way to price insurance risk more accurately—and we believe more accurate pricing would have some positive environmental and equity benefits.** You’re right that the low-tech approach of odometer reading could be subject to tampering. That’s less of a concern now with newer odometers, but it has historically been a concern for insureres. One solution is GPS technology—which is now standard in many new vehicles—and which can provide more or less foolproof data.** PAYD isn’t designed to be a revenue generator. It’s not supposed to raise money to pay for transit or what have you. It’s simply supposed to price insurance risk more accurately. By factoring in miles driven as one among several risk factors insurance premiums will, on average, decline for low-mileage drivers. We think that’s fairer for folks who don’t drive a lot—and we think it’s good public policy too because it provides a built-in incentive for motorists to be conservative in their driving habits.
foo
You realise of course that ICBC does already have a form of PAYD? You pay less for insurance if you commute less than 15km each way each day. That means people who travel less than ~10k km/year pay less for insurance than people who travel more.
foo
Oops, and there’s another class for “pleasure”, which is effectively for even lower mileage.
cfvua
What about commercial vehicles? Should it cost more to insure a dump truck idling around a construction site than some lettuce hauler trying to stay awake long enough to put on 300,000 kms a year at high speed on multi-lane highways? All the while blowing exhaust fumes? What is the greater exposure to risk? Why does vocational use cost more? Does your pleasure use cover you if you decide to go to school out of province and only put on a few kms getting there? Current technology in most 10 year old vehicles would allow downloading of actual kms travelled from engine computers, especially in commercial vehicles.
Rod Smelser
Alan Durning:If there is a problem getting reliable travel distance data, how does anyone know that there is “actuarial evidence” showing a strong relationship between distance driven and claims?In one of Todd Littman’s papers he uses the figure 7 cents per kilometre for BC motorists if a full PAYD scheme were implemented. IF we just take it as given that the average car, in local driving, burns 10 litres per hundred kilometers, then one is adding a 7 cents per kilometer insurance charge to a 10 cents per kilometre fuel charge at gas prices of $1 per litre. How is it that the additional 7 cents per kilometer will have deterent effects that the existing 10 cents don’t seem to have?