[sustran] New Study Evaluates Pay-As-You-Drive Vehicle Insurance

[Todd Alexander Litman]

For Immediate Release

12 May 2011

Contact: Todd Litman

250-360-1560, litman at vtpi.org 

 

New Study Evaluates Pay-As-You-Drive Vehicle Insurance. Identifies
Significant Potential Benefits to Motorists, the Economy and the
Environment.

 

Pay-As-You-Drive Vehicle Insurance in British Columbia
(http://www.pics.uvic.ca/assets/pdf/publications/PAYD_Insurance.pdf )

By Todd Litman of the Victoria Transport Policy Institute for the Pacific
Institute for Climate Solutions.

===================================

 

Insurance is one of the largest motor vehicle expenses, costing about $1,200
annually for a typical automobile. Conventional insurance is a fixed cost
with respect to vehicle use; moderate reductions in vehicle travel provide
no savings to motorists. An alternative price structure, called
Pay-As-You-Drive (PAYD), changes insurance into a variable cost, so
motorists save money when they reduce their mileage. As a result, they tend
to drive less.

A new report, Pay-As-You-Drive Vehicle Insurance in British Columbia,
written by Todd Litman of the Victoria Transport Policy Institute for the
Pacific Institute for Climate Solutions evaluates the feasibility, benefits
and costs of Pay-As-You-Drive insurance in British Columbia. The analysis
indicates that PAYD pricing could provide significant benefits to motorists,
the economy, and the environment. 

Various studies indicate that reducing vehicle travel reduces crashes. PAYD
does not simply shift costs from one group to another: premium reductions
reflect, in part, the savings that result when motorists reduce their annual
vehicle mileage and therefore claim costs. As a result, it need not reduce
insurance company profitability. 

Under most proposals PAYD would be a user option, so motorists could choose
the price struc­ture that best meets their needs. Only motorists who expect
to save money would choose PAYD. 

In addition to consumer savings, PAYD pricing tends to reduce energy
consumption, carbon and other pollution emissions, and traffic congestion.
It increases insurance affordability by giving motorists a new way to save
money, and it is progressive with respect to income since lower-income
motorists tend to drive less than average. 

The report evaluates several possible implementation methods. A relatively
simple approach, called basic PAYD, prorates existing premiums by the
average annual mileage of each rate class, so a $600 premium becomes 3¢ per
kilometre, and a $1,800 premium becomes 9¢ per kilometre. Mileage can be
verified with digital photos taken by motorists or insurance brokers at the
start and end of the policy term. Because it has low implementation costs,
this approach is predicted to have the largest potential market and provide
the largest savings and benefits.

PAYD insurance is not currently available in British Columbia but has been
implemented else­where, including in the United States, Europe and
Australia.

 

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The Victoria Transport Policy Institute (www.vtpi.org) is an independent
research organization dedicated to developing innovative solutions to
transport problems.

 

 

Sincerely,
Todd Litman
Victoria Transport Policy Institute (www.vtpi.org <http://www.vtpi.org/> )
litman at vtpi.org
Phone & Fax 250-360-1560
1250 Rudlin Street, Victoria, BC, V8V 3R7, CANADA
“Efficiency - Equity - Clarity”