Talking Points

“If I do not want to pay for gas, I don’t have to. If I can’t afford to get my car fixed for a while, I don’t have to. But I still have to pay my insurance every month, whether I am driving or not. I find that annoying.” – Portland resident Colleen Waters(1)

Pay-as-you-drive (PAYD) auto insurance makes good sense.

• Two drivers of the same age, sex, and driving history, who drive the same model car, have an equal chance (0.0003% per mile driven) of getting into an accident. Driver A uses his/her car to drive to work for an average of 30 miles per day, plus another 50 miles on the weekend. This amounts to 5,200 miles per six-month policy period. Driver B rides the bus or bikes to work to decrease gas and parking costs and the hassles of driving and parking downtown. Driver B averages 30 miles total per week, totaling 780 miles per six-month policy period. With traditional time-based insurance, the two drivers pay the same amount per six-month policy period, but Driver A is 6.7 times more likely to have an accident than Driver B. Assuming each driver pays $300 every six months for car insurance, Driver A is paying six cents per mile of coverage, while Driver B is paying more than 38 cents per mile. Driver A is 6.7 times more likely to have an accident, yet pays 83% less per mile than Driver B. This example clearly illustrates that the current insurance pricing system does not fairly account for risk, and forces Driver B to subsidize Driver A.
• Time-based insurance pricing encourages an all-you-can-drive attitude – why conserve on mileage if you’ve already paid a flat rate to use the service? Low-income drivers who minimize their driving may find it more feasible to go without insurance altogether, preferring the risk to high premiums on a rarely-used vehicle.
• PAYD insurance promotes fairness in insurance pricing and creates incentives to drive less, which decreases accident risk, road congestion, and emissions that significantly contribute to pollution. It makes drivers aware of the true costs of vehicle operation, rewards them for minimizing environmental impacts, and may decrease the number of uninsured drivers by offering a cost-effective alternative for low-mileage drivers.
• PAYD represents one of the most cost-effective ways to pursue congestion reduction, air pollution reduction, and energy conservation.

PAYD results in more fairness and equality.

• Insurance companies currently overcharge low-risk drivers in order to provide “affordable” insurance to high-risk drivers. PAYD ends the forced subsidies.(2)
• Some insurance companies currently offer mileage-based discounts, but they are not proportional to the difference in miles. By reducing mileage by 50%, a driver can reduce their premiums by 5-10% at most. PAYD would make insurance costs proportional to risk and usage.(2)
• On average, women drive their vehicles about 40% less and have about 40% fewer accidents than men, yet only receive small auto insurance discounts. PAYD pricing will more accurately reflect driving and risk realities.(2)
• PAYD would make car insurance available and affordable to more people.

PAYD is good for consumers.

• In a pilot program conducted by Progressive Insurance, PAYD participants saved an average of 25% off their usual premium price.(3)
• PAYD reduces the fixed costs of vehicle ownership. Such costs can be prohibitive when deciding whether or not to purchase a vehicle.
• More low-income households would be able to insure a vehicle. Quite often, these households are in areas that are charged higher premiums because of their location and the associated heavy traffic, frequent collisions, etc.(4)
• Motorists who continue their current mileage patterns would, in general, be no worse off with PAYD.(2)
• PAYD makes it more cost-effective for households to insure seldom-driven vehicles.

PAYD is good for the environment.

• Potential savings may persuade many drivers to leave their cars at home more often. PAYD is expected to reduce driving 10-20%.(2) Fewer vehicles on the road means:
  • Fewer traffic jams;
  • Less global warming;
  • Less air pollution;
  • Less unsightly smog; and
  • Less energy consumption.
• Automobiles account for more than 25% of greenhouse gas emissions in the United States. Research expects widespread adoption of PAYD policies to reduce driving by 10-20%, resulting in significant decreases in greenhouse gas emissions and resulting global warming and air pollution.(5)
• Under current auto insurance pricing schemes, the cost of pollution is not built into the consumer’s cost. People are encouraged to drive more and make poor substitution choices regarding transportation alternatives because they lack accurate information on the real cost of their driving. Mileage-based insurance gives drivers much better information as to the total cost of driving.(2)
• With the new incentive to drive less, cars will last longer. Longer-lasting cars means less space required to dispose of the “retired” ones.

PAYD is good for society.

• A 10% reduction in driving would lead to an estimated 17% reduction in crashes, decreasing the number of insurance claims. Higher-risk motorists would have the greatest incentive to reduce their driving because they’d be paying the higher amounts per-mile for coverage.(2)
• Some low-income motorists cannot afford insurance and others just don’t consider it cost-effective to insure a seldom-used, low-mileage vehicle. PAYD would encourage insurance in these cases, reducing the number of uninsured motorists on the road and the costs associated with collisions involving uninsured persons.(2)
• PAYD is expected to reduce driving by 10-20%. A reduction in driving is expected to cause a decrease in traffic congestion, road and parking facility costs, accident risk, pollution emissions, consumer costs, and urban sprawl.
• Modeling in Los Angeles indicates that a 2-cent-per-mile fee would reduce total trips by 4.1% and congestion-caused delay by 10.5%. Large-scale application of PAYD might reduce congestion by 15-25%.(2)(6)
• A reduction in mileage and time spent on the road has the benefit of allowing more time with friends and family, and encourages healthier, alternative modes of transportation such as walking and biking.
• PAYD offers incentives to decrease dependence on oil, and could help mitigate a situation like the gas crisis that occurred in the 1970s.

PAYD is good for taxpayers.

• Reduced driving decreases the need for road maintenance and new road construction. The Oregon Environmental Council estimates PAYD could reduce the state’s road-related costs substantially in the next 20 years.

PAYD is feasible for insurance companies.

• Less time on the road equals less accidents. This, in turn, equals less claims and less insurance company payouts, so insurance companies can afford to charge low-mileage drivers less. While the insurance company may lose money in premiums, they will pay less money out in collision claims.
• Although the costs to insurance companies of establishing a PAYD program may be high, they can be offset by tax incentive programs like Oregon’s. See the State Activity page for more information.
• The increasing availability of in-vehicle GPS as a standard feature or as an inexpensive option in new vehicles is rapidly broadening the ability of insurance companies to offer PAYD insurance. OnStar® GPS systems were standard or optional on thirty-six 2002 model year vehicles; for 2004, OnStar® boasts 2 million customers.(7) Because this technology already exists in the vehicle, consumers would not have to pay extra to have them installed for PAYD insurance.
• Insurance companies offering PAYD may see an increase in market share. Consumers may view insurance companies offering PAYD as innovative, socially-responsible, and responsive to customer needs.