Insuring Good Cities, One Mile At A Time

Josh Stephens's picture

I once was consigned to a table full of business school students at a land-use conference at UCLA. Trying to be a good sport, I offered the only idea that I'd ever had about business: car insurance charged according to miles driven. I posited that since risk and mileage were more or less correlated, it only made sense that people who drove more and incurred more risk should pay more.

My tablemates stared back at me as if I had just issued a rousing recitation of Das Kapital.

"The chances of getting in an accident are proportional to the amount you drive," I explained. "So people who drive more incur more risk and should pay more. Right?"

"Um, no," said one budding CEO. I asked him why not, and he mumbled something that implied that he was facing a bright career pushing numbers around a spreadsheet. It was then that I decided never to go to business school.

Unless I'm missing something, the number of miles someone drives does -- all else being equal -- in fact correlate to risk. If I drive zero miles per year, the chances of totaling my Prius are nearly submarine. If I take my Hummer on death rages every time I bemoan last night's American Idol dismissal, the chances that I will run headlong into a Dairy Queen rise substantially. At least think that's how it works.

Having had this idea shot down, I've kept it under my hat. I figured it was obvious enough that someone else (or many other people) would eventually come up with it. And I was right. Much the same concept appeared this month in an article in Democracy: A Journal of Ideas; written by Jason Bordoff, it appears among a series of articles on "The New Progressive Agenda,". Bordoff rightly notes that "pay-as-you-drive" insurance is not only technologically feasible but also "a win-win policy-good for society and good for most drivers-that makes significant progress on climate change, congestion, and other driving-related harms."

The simplicity, brilliance, fairness, and multifaceted benefits of this plan should be obvious to almost anyone (except MBAs). Not least among them are the benefits to cities.

Though planning is becoming an ever-more collaborative enterprise, most planning solutions still reside in the built environment. But this focus incurs two major problems. First, even the most mildly transformative projects can take years to complete, anything reaching beyond a block or a neighborhood takes nearly forever, Second, no matter how well planned or well intentioned a plan may be, it will still fall prey to human vagaries. Plans depend on people, and people sometimes act in strange ways.

But when money is at stake--and the stakes are clear and obvious--behavior becomes eerily predictable. And that's why car insurance rates and urban planning become two sides of the same coin.

The benefits of Bordoff's scheme should be obvious to any progressive urbanist. If the marginal costs of driving increase, on a mile-by-mile scale, then drivers are faced not with vague admonishments to give the car a rest but rather immediate, palpable incentives to drive less. I'm willing to guess that almost everyone, no matter the form of their neighborhood or the quality of their public transportation, could shave a few miles off their weekly travels if only they gave it some thought.
In the even bleakest suburbs, people can learn to walk between strip malls. In the best, coziest neighborhoods, many who drive out of insensate habit could probably weld shut the garage. In the long run, more expensive driving may finally convince people that density, buses, and bike lanes aren't all that evil, and changes in land use may follow.
Most importantly, this particular planning solution could be implemented by fiat. It needs no building permits and needs not wait for concrete to harden. It just requires someone bold and enlightened enough to realize that good business and good social policy can be one in the same.

I'm not sure if pay-as-you-drive car insurance would be enough to inspire those changes in and of itself, but when coupled with gas prices, maintainence prices, parking rates, and a little PR, they might be an effective catalyst. Regretably (or, perhaps, fortunately), the gas prices seem to be holding up their end of that bargain these days.
Even if the per-mile rate is small (a $1,200 annual premium works out to maybe 10 cents per mile for the average driver), even a small psychological nudge might be enough to affect behavior. Add an average of 20 cents per mile in gas (assuming $4 gas 20 MPG), and an enlightened, aggressive insurance scheme might put per-mile marginal costs in the range of 30-40 cents per mile.

Those costs would not singlehandedly create mixed-use buildings, charming pocket parks, or locally owned fair trade coffee houses. But it would encourage people to drive more wisely, pay more attention to their local amenities, and, perhaps, think about how to take better advantage of the existing urban fabric and to envision ways to make it better.

It's perfectly understandable why planning and insurance would not normally mix. One is a hideous affair of number-crunching and risk analysis while the other aspires to creating a home for humanity. I know which one interests me more. But if planning can tolerate some strange bedfellows, we may find some powerful allies who can help build friendlier, more functional cities, one mile at a time.

Josh Stephens is a contributing editor of the California Planning & Development Report ( and former editor of The Planning Report (



When I paid car insurance in

When I paid car insurance in Massachusetts a few years ago I received a modest discount for driving less than some set annual mileage. The state recently peeled away a couple layers of regulation from its insurance industry and I don't know where that leaves the discount. I remember a major determinant of my rate was my city of residence--an indicator of risk of theft. This means urban customers pay more than suburbanites do, which is an incentive to either live in the suburbs or live car free in the city.

Yes and No

While yes, the amount you drive probably correlates to risk, I think the risk of getting in an accident is also highly correlated to where you drive (and where you live). Unfortunately, accidents can happen even to good drivers because of other peeople on the road, so if you drive in places with lots of other folks on the road, you're more likely to get in an accident. The converse, you live in a very rural area and have to drive many more miles to do anything, but nobody else is on the road, maybe you're less likley to get in an accident.... it would probably be unfair to do a pay as you go insurance for this type of driver as a city driver is more likley to get in an accident despite driving far less miles.

Now, maybe if you do paay as you go insurance while also adjusting for location, then you've got something going... However, if it's such a great innovation, why aren't insurance companies already doing it? They do have some form of it as I know you can get single trip insurance for driving into Mexico down in San Diego.

Risk and mileage

There are far more variables to risk than simply miles driven. What insurance companies are assessing is the risk of loss (e.g. theft, vandalism, hail storms, hurricanes), not simply odds of an accident happening. They are also assessing the cost of a potential claim. Corvettes cost more to fix than Chevettes. The mileage charge also ignores well documented actuarial data such as younger drivers have far more claims and more serious claims regardless of miles driven. For two career couples in metro areas this proposal is just punitive. Isn't it enough that one of them typicaly has to endure a longer commute and the attendent costs?

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