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A Good Sense Product: Pay as You Go Auto Insurance

It’s not too often that you get a chance to talk about an insurance product with the potential to be good for the planet, but I have one for you — pay-as-you-go auto insurance. These are policies with the premium rate tied to the number of miles (or sometimes hours) the car is driven per month. All the other pricing factors apply, but the equation in terms of risk is so simple you have to ask why it hasn’t always been done this way. The less time you spend behind the wheel, the less chance you have of being in an auto accident.

That’s a good thing on many levels. First off, less chance of an auto accident, less chance of you waking up in a hospital. But, the savings to the insurance industry in accident-related damage claims could be as much as $60 billion a year if insurance by the mile became the standard format instead of the current lump sum sort. The Brookings Institute estimates that in that scenario, driving in the United States would drop 8 percent.

But now, consider some corollary figures in that same scenario. Carbon dioxide emissions would drop 2 percent and oil consumption would drop 4 percent — all while the average American family was saving about $270 per car on insurance expenses. A less expensive insurance model tied to verifiable data with broader environmental and economic implications? Why aren’t we doing this?

Well, 34 states are supporting this model with some impressive results. Progressive, for instance, offers its MyRate program in Alabama, Louisiana, Kentucky, Michigan, Maryland and Minnesota, with low-mileage drivers seeing savings of as much as 60 percent. GMAC’s OnStar program, which uses the system’s monthly data report to verify miles driven, is knocking about 54 percent off the cost of auto coverage for people enrolled in the program.

And that’s the bottom line requirement for this insurance model to be widely adopted — verifiable data. Onboard computer systems like OnStar are the ultimate and most logical means of gathering the data, although some companies continue to use certified odometer readings or employ GPS readings to determine rates and monitor usage. (All guarantee that data gathered about customers’ driving habits is kept confidential.)

Other companies offering pay-as-you-drive policies include Liberty Mutual and MileMeter. While not yet as widely available as it could or should be, this type of coverage makes perfect sense in the face of better automotive technology and it has not just a cost-saving component, but an environmental one as well. A solid evolution of a tried and true and legally required insurance product, and one we hope to see more readily available in coming months.

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