New Study Builds Case for Pay-As-You-Drive Auto Insurance

The more you drive, says a new study, the more you are at risk of getting in an accident. So if how much one pays for car insurance was linked to mileage, there would be a significant reduction in driving - and fender benders.

The study was funded by the Conservation Law Foundation. From the introduction to the study, which was based in Massachusetts:

"The Conservation Law Foundation (CLF) and the Environmental Insurance Agency commissioned a study
to assess the risk‐mileage relationship using actual insurance claims information in Massachusetts. This
study ("Ferreira and Minikel 2010") offers the largest disaggregated analysis to date of the risk‐mileage
relationship and the actuarial basis for PAYD. The work analyzes data on $502 million worth of claims on
almost 3 million cars driven an aggregate of 34 billion miles. The study confirms the statistical
soundness of pay‐as‐you‐drive auto insurance pricing and indicates that the PAYD approach would result
in significant reductions in miles driven, green house gas emissions, and auto accident losses without
adverse equity impacts to drivers."

One interesting part of their proposal in regards to planners is the suggestion to charge suburban and rural car owners less per mile than urban car owners.

The full study can be downloaded directly here.

Thanks to Todd Litman

Full Story: Pay-As-You-Drive Auto Insurance (PAYD)


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