Imagine if state law made it difficult for pizza joints to sell by the slice. You’d have to buy—and eat—a lot of pizza when you got a hankering. Either that, or you’d have to give up on pizza entirely. By-the-slice pizza lets light eaters save money without giving up pie entirely.
The car insurance market is like a no-slices pizza world. You have to buy a lot of insurance, even if you only drive a little. Or you have to give up driving—or drive illegally without insurance.
The equivalent of by-the-slice pizza is by-the-mile auto insurance. It gives families a new way to save money, by driving less. It also lets low-income drivers buy just a little insurance at a time. So promising is this idea that public agencies have been contributing to a pilot project in Washington.
Today, state senator Phil Rockefeller introduced a bill in the Washington legislature to, in the bill’s words, “eliminate existing regulatory barriers to mileage-based automobile insurance policies, to expressly authorize the insurance commissioner to approve the offering of such policies, and to ensure that insurers, at a minimum, offer a discount for low-mileage drivers.”
Insurance regulation is a thicket, and this bill intends to clear a path to new savings opportunities. Existing state insurance law doesn’t outright ban mileage-based insurance anywhere in Cascadia, but it does throw obstacles in the way of would-be by-the-mile insurers. Rockefeller’s bill would change that, ending legal discrimination against by-the-slice eating—er, driving.
Pizza picture courtesy of flickr user Adam Kuban under a Creative Commons license.
Eric H
This is a good start. It would be nice to get the per-mile systems in place in time to avoid the same whole-pizza approach now being talked about for electric car fees.
Jan Steinman
Check out the work that Todd Litman has been doing in Victoria. He’s given the concept the catchy name “PAYD” for “Pay As You Drive.”Too bad he’s bucking a Provincial monopoly, instead of one of the most powerful services lobbies… hmmm… the deck is really stacked against, isn’t it?http://www.vtpi.org/
Eric Hess
Hi Jan, thanks for the comment. We’ve actually written about the PAYD situation in BC and the tricky situation they face. Here’s Alan and Eric in the Tyee.
Nancy Bluestein-Johnson
My daughter is at college and only drives when visiting home on vacation, maybe two months out of the year.We still have to pay for her insurance on our plan. Her insurance is more expensive as she is a young driver. This would be a great saver for our family.
Keith Barger
If states would simply eliminate private auto insurance and instead have “no-fault” pay-at-the-pump insurance and have this PAYD system for when you leave the state. This would offer additional incentives to have fuel efficient vehicles, reduce legal fees (no-fault), and be easy to implement. As hybrids still use gas, then they’d still chip in. Wholly electric vehicles can have their electrical usage translated to a gas equivalent (usually in the 90-120 MPG range). This could be the basis for their charge for “pay-at-the-pump”
CARGUY
The problem with pay-at-the-pump insurance is that it means everyone pays the same rate, when clearly different drivers pose different risks. I’ve been in some highly regulated no-fault states back East, and rates are considerably higher for most people because there isn’t as much ability to raise rates on those expected to be bad drivers. Even then, such states usually charge higher rates for those with moving violations like speeding tickets or running red lights. I don’t see any good reason why I should pay the same insurance rate as someone with a long list of speeding tickets and a couple of accidents. The pay-at-the-pump system takes away any incentive to drive responsibly.
DRF
This really misses the point of state-required auto insurance; it’s not to protect the driver, but to protect the other car and its passengers. Each state requires a car owner to maintain auto insurance in order to ensure that the driver and passengers of the other vehicle in an accident have recourse.If I understand per-mile insurance properly, it raises the possibility that a car owner could forfeit his/her coverage by exceeding his allowed mileage. That creates a real problem for others on the road, who may now find themselves in an accident with an uninsured driver. On the other hand, if there is no possibility of forfeiture, but rather just an adjustment to the premiums based on mileage, this could work, although it would seem difficult (and therefore expensive) for an insurer to administer.
Uncle Vinny
I heard about Unigard’s PAYD experiment via the Sightline blog, and have been on it for about a year now. It’s quite affordable, although they aren’t basing the cost on my mileage yet, they’re just collecting data. (I have their gps device in my car.)I’m guessing my rates will drop a lot once they base it on my mileage. …And I’m trying to remember not to use my car to pull off any heists where the fuzz could use my GPS info to tie me to the scene of the crime…
Alan Durning
Jan: We’ve been cooperating with Todd Litman on this since 1995!Keith: Pay-at-the-pump has real benefits, but there would be nothing “simple” politically about overhauling the entire auto insurance market. By-the-mile insurance is also somewhat better than by-the-gallon insurance at matching actuarial risk. From a practical perspective, by-the-mile (or Pay As You Drive) insurance is superior. We can convert the auto insurance market one policy at a time.DRF: You’re right. By-the-mileage insurance would be problematic if it were designed in pre-paid blocks of miles, like a pre-paid long-distance phone card. By-the-mile insurance is a little harder for insurers, but it’s also dramatically more accurate at predicting risk. And that’s the whole basis of insurance: to match premiums with actual risks. Those insurers who figure out cost-effective ways to charge by the mile will likely get better profitability.Insurers have confided in me that they expect the entire auto insurance market to flip toward mileage-based, and time-of-day-based, premiums (that still also reflect other risk factors such as age and driving record). First, though, innovators need to crack the administrative nut of data collection and billing.This bill should help with that process.
Jay
“By-the-mile insurance is a little harder for insurers, but it’s also dramatically more accurate at predicting risk.” Actually, it isn’t. Just because somebody drives longer distances does not mean that the driver proves to be a higher-risk driver. A long-mileage driver is a different kind of exposure. In fact, drivers who accumulate greater-than-average miles normally have fewer accidents because of their own driving experience. Someone who drives very little can pose more risk due to lack of experience.A pay-as-you-go system based on miles driven sounds good on the surface, but doesn’t stand up to the statistics. Older drivers, though they may have experience with age, also show a decline in skills and alertness as they age, negating their experience. Their only savings comes from the low-mileage classifications they receive when they do drive less. However, if you pay based on mileage, you will be charging a class of individuals with less premium when they cause a progressively higher proportion of accidents. The same is true for the opposite reason for youthful drivers who drive less but with less experience also have a greater proportion of accidents.This desire to charge based on how far you travel ignores a lot of other aspects to insurance rates that are already built into the system to charge those who actually drive more _and_ have more accidents than those who don’t. The proposed system changes will inflict more damage than good.
Alan Durning
Jay,I think you misunderstand the proposal. Mileage-based insurance doesn’t ignore other rating factors, such as age and driving record. It ADDS mileage to them. The unit of insurance is a mile. All the other rating factors still apply to that unit.Extensive actuarial research (much of it summarized at http://www.vtpi.org) now demonstrates that for each class of drivers, the number of miles driven is a strong predictor of crash risk.
carguy
Alan,Your posts clear up several thigns, but I still haven’t seen a good argument for how pay-at-the-pump would work where insurance is just built into the price of gas, as was suggested above. How do you adjust for risks between drivers then?Also, the privacy issues are still huge. If based on odometer checks at certain intervals, that is one thing. If based on having GPS tracking in my car, no way, repeat, NO WAY. It isn’t just a matter of the insurance co have that info. It opens up all sorts of possibilities, such as government agencies obtaining the information for who knows what purpose. If nothing else, it’s a very, very small step to let government agencies automatically figure out if you’ve ever broken speed limits or other traffic laws if that data is being collected in your car.Or your tracking data can be subpoenaed in civil suits. That already happens, that sort of data is fair game in divorces, torts, etc. If you use an EZ Pass transponder on toll roads in the Northeast, for example, all of the time/location data collected by it is fully available if you’re in a contested divorce or custody case, if your employer is investigating whether you were falsifying your hours on the job, etc.
myna lee johnstone
i keep a car 89 chev sprint just for emergencies or loads, the rest of time i use my ebike and/or transit and thumbyet i have to pay the same as all those motorists driving hundreds, thousands miles a monthno fair and not mindful
Alan Durning
Jay,People have different degrees of concern about privacy. Voluntary pay-as-you-drive allows people to choose an option that fits their privacy concerns. Technology vendors are developing a range of techniques for measuring vehicle usage. Some track location, speed, acceleration, aggressive braking, time of day, etc. You should sign up for those, if you’re as concerned about privacy as you seem to be.Others simply record mileage. Others record simply when the car is moving or not—not mileage, location, or anything else. Still others just record mileage, nothing else. And, as you point out, self-reported odometer readings (with random audits or random required photo verification [please mail, email, or text a photo of your odometer!]) hardly touch your privacy. Finally, with any of these systems, it’s possible to screen data from the insurer. Some systems track lots of information but only convey the price to the insurer—the onboard technology, like a taxi meter, calculates the bill.My point here is that many privacy concerns submit to technological solutions and that the marketplace can accomodate the full range of privacy concerns.One final note: I am personally much less concerned about the privacy of my travel patterns than you are. I used to be more concerned. Then I realized that my cell phone and debit card trail in the world are much more significant privacy concerns than my travel patterns would be.
Alan Durning
My last comment was actually in response to “CarGuy”, not “Jay.”