Pay-per-mile or Pay-as-you-drive (PAYD) auto insurance plans are a less expensive alternative to traditional auto insurance that is gaining popularity, especially among transit users. Traditional auto insurance premiums are based on a variety of risk factors, but do not typically take into account the mileage that the vehicle is driven. PAYD programs offer full-coverage insurance plans with a base monthly fee that is significantly lower that other plans, typically between $3o and $60 per month. Drivers then pay an additional fee per mile driven, which is usually just a few cents per mile.
For those who own a vehicle, but also take transit, bike, work from home, or just don’t drive that often, PAYD plans can save them anywhere from 20 to 50 percent on their auto insurance costs.
According to the Brookings Institute, it is estimated that two-thirds of American households could save $270 a year by switching to a PAYD insurance plan. Insurance companies benefit from these plans as well, because the less their clients drive, the less likely they are to have to pay for an accident. Additionally, these plans have the potential to reduce participants’ mileage by 10 percent, which can serve to ease congestion and reduce pollution on top of the cost savings.
Unfortunately, PAYD plans are not currently available in Missouri, or in most states, for that matter. A number of legal and regulatory mechanisms exist that can make it extremely difficult for insurance companies to implement this type of auto plan. For example, many consumer protection laws require insurers to disclose the full amount of the premium up front, which can be complicated for some PAYD plans. Certain states also prohibit insurers from installing GPS or mileage-tracking devices on their clients’ vehicles. Insurance regulations vary from state to state, and must be approved by the state legislature, further muddying the process for companies that want to expand the business of PAYD auto insurance into new states.
The good news is that a handful of states have opened their doors to PAYD insurance plans and are paving the way for others to do the same. In 2008, the Texas Department of Transportation received a $2 million grant from the Federal Highway Administration (FHA) to test-out a PAYD insurance program as part of their efforts to reduce traffic congestion and promote innovative transportation ideas. The Texas program, called MileMeter, requires drivers to “purchase” miles and pay for them in advance as part of their 6-month policy premium. After 6 months, drivers can rollover unused miles to the next period or pay for any extra miles used. MileMeter also allows drivers to self-report their mileage by snapping a photo of their odometer instead of requiring any new data-collecting technology to be installed on the vehicle.
Just last week Oregon rolled out its new PAYD program, MetroMile. MetroMile differs from Texas’s MileMeter in that it bills customers monthly based on their mileage for that month. It also requires the installation of its propietary device, the Metronome, on all customer vehicles. The Metronome collects mileage data that MetroMile uses to calculate premium costs. There is no fee to customers for the device and drivers can view their mileage data online. MetroMile credits the progressive and innovative nature of Oregon’s insurance industry with providing the company the resources needed to put their PAYD plan into action.
PAYD insurance plans can provide a huge benefit to existing transit commuters who also own a car and are frustrated at having to pay the same insurance costs for a vehicle that a daily driver would pay when they only use their car on weekends or for big trips to the grocery store. These programs also have the potential to encourage drivers to switch to transit by creating a financial incentive to do so. And best of all, they reward those who are making an effort to reduce traffic, pollution, and gas usage and make their communities healthier.