M II A II R II K
Senior Member
Pay As You Drive Auto Insurance
MIT Professor Joseph Ferreira, Jr. & Eric Minikel
PDF Report: http://www.clf.org/wp-content/uploads/2010/12/CLF-PAYD-Study_November-2010.pdf
Executive Summary
Each year, Massachusetts drivers are driving more, and with each additional mile driven, levels of global warming pollution rise. The prospect of tying auto insurance rates to miles driven, called Pay‐As‐You‐Drive auto insurance (PAYD), offers the opportunity to improve the accuracy of auto insurance rating while reducing vehicle miles traveled (VMT) and corresponding accident costs as well as reducing fuel consumption and greenhouse gas emissions.
Pay‐As‐You‐Drive auto insurance is a win for consumers, insurers and the environment:
• Consumers can save money; they will only pay for the coverage needed based on how much they drive.
• Insurers can improve the accuracy of their rating plans while providing an incentive to reduce the number and cost of auto accident claims.
• The environment will benefit from the reduction in driving that PAYD incentivizes – less driving means reduced fuel usage and lower greenhouse gas emissions.
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 2010â€) 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.
PAYD Saves Money and is a More Accurate and Fairer Method to Price Auto Insurance:
• By basing premiums at least partly on mileage, PAYD provides individual policyholders more control over their insurance costs and more accurate premiums for the type of driving they do.
• PAYD pricing reduces inequities by eliminating the subsidies low‐mileage drivers currently pay for high‐mileage drivers in the traditional pricing system.
• Even though suburban and rural car owners tend to drive more miles than urban car owners, their per mile charges would be lower. If they drive less than the average for their area, they would pay less for actuarially‐priced PAYD insurance than they do today under the existing system. PAYD Reduces Vehicle Mileage Traveled (VMT), Accidents and Fuel Consumption by 5‐10%
• Switching all Massachusetts drivers to pure per mile auto insurance pricing would reduce mileage, accident costs and fuel consumption by about 9.5%. An alternative model with a flat yearly rate plus per mile pricing after the first 2,000 miles would reduce these measures by about 5%.
• These reductions could range between 3 and 14% depending on a number of variables like fuel prices. But even the study’s lowest plausible VMT reduction (2.7%) would save more than a billion miles annually and millions of tones of GHG.
• Negative impacts of congestion will decrease under PAYD, particularly for urban driving.
MIT Professor Joseph Ferreira, Jr. & Eric Minikel
PDF Report: http://www.clf.org/wp-content/uploads/2010/12/CLF-PAYD-Study_November-2010.pdf
Executive Summary
Each year, Massachusetts drivers are driving more, and with each additional mile driven, levels of global warming pollution rise. The prospect of tying auto insurance rates to miles driven, called Pay‐As‐You‐Drive auto insurance (PAYD), offers the opportunity to improve the accuracy of auto insurance rating while reducing vehicle miles traveled (VMT) and corresponding accident costs as well as reducing fuel consumption and greenhouse gas emissions.
Pay‐As‐You‐Drive auto insurance is a win for consumers, insurers and the environment:
• Consumers can save money; they will only pay for the coverage needed based on how much they drive.
• Insurers can improve the accuracy of their rating plans while providing an incentive to reduce the number and cost of auto accident claims.
• The environment will benefit from the reduction in driving that PAYD incentivizes – less driving means reduced fuel usage and lower greenhouse gas emissions.
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 2010â€) 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.
PAYD Saves Money and is a More Accurate and Fairer Method to Price Auto Insurance:
• By basing premiums at least partly on mileage, PAYD provides individual policyholders more control over their insurance costs and more accurate premiums for the type of driving they do.
• PAYD pricing reduces inequities by eliminating the subsidies low‐mileage drivers currently pay for high‐mileage drivers in the traditional pricing system.
• Even though suburban and rural car owners tend to drive more miles than urban car owners, their per mile charges would be lower. If they drive less than the average for their area, they would pay less for actuarially‐priced PAYD insurance than they do today under the existing system. PAYD Reduces Vehicle Mileage Traveled (VMT), Accidents and Fuel Consumption by 5‐10%
• Switching all Massachusetts drivers to pure per mile auto insurance pricing would reduce mileage, accident costs and fuel consumption by about 9.5%. An alternative model with a flat yearly rate plus per mile pricing after the first 2,000 miles would reduce these measures by about 5%.
• These reductions could range between 3 and 14% depending on a number of variables like fuel prices. But even the study’s lowest plausible VMT reduction (2.7%) would save more than a billion miles annually and millions of tones of GHG.
• Negative impacts of congestion will decrease under PAYD, particularly for urban driving.
