[sustran] Re: Pay-As-You-Drive Pricing For Insurance Affordability-Media Notice

[Todd Alexander Litman]

A number of organizations are promoting PAYD, including the National 
Organization for Women (www.now.org and http://www.centspermilenow.org), 
Environmental Defense 
(http://www.environmentaldefense.org/article.cfm?ContentID=2205), the 
Oregon Environmental Council (OEC'S website), NorthWest Environment Watch 
(www.northwestwatch.org/press/payd_facts.html), and the National Motorists 
Association (www.motorists.org).

The problem we face is that, although this type of transportation pricing 
reform provides many benefits (increased affordability, consumer savings, 
reduced accident risk, reduced congestion, reduced energy consumption and 
pollution emissions), there is currently no broad coalition working to 
promote it. As a result, most people are either unaware of the concept or 
think of it only in terms of one objective.


Best wishes,
-Todd Litman


At 03:29 PM 5/20/2004 -0400, you wrote:
>are any US NGOs working on this?  I'm not aware of any but not so focused on
>the US.  Its an interesting set of issues that might attract a non
>traditional constituency for our issues.
>
>w.
>----- Original Message -----
>From: "Todd Alexander Litman" <litman at vtpi.org>
>To: "Asia and the Pacific sustainable transport"
><sustran-discuss at list.jca.apc.org>
>Sent: Thursday, May 20, 2004 2:02 PM
>Subject: [sustran] Re: Pay-As-You-Drive Pricing For Insurance
>Affordability-Media Notice
>
>
>
>The current insurance pricing system is certainly unfair in many ways.
>Whether or not it is intentional, premiums imposed on lower-income and
>minority are often higher than actuarially justified. This occurs because
>lower-income motorists tend to drive their vehicles less than average, and
>so tend to cross-subsidize wealthier, higher-mileage motorists in their
>rate class.
>
>There are a number of reasons that insurance rates are higher in
>lower-income neighborhoods, particularly:
>          * Higher traffic densities.
>          * Higher rates of uninsured vehicles, which increases costs on
>those who are insured.
>
>For discussion see Patrick Butler, "Why The Standard Automobile Insurance
>Market Breaks Down In Low Income Zip Codes," Report to the Texas House
>Committee on Insurance, July, 2000, available from the National
>Organization for Women Insurance Project (www.now.org).
>
>
>Because current practices undervalue mileage as a rating factor, other risk
>factors, such as driver demographics and territory become overweighted.
>PAYD insurance would allow more accurate pricing, and offer motorists a new
>opportunity to save money by reducing mileage, which is particularly
>valuable to lower-income, urban households. Virtually any strategy for
>making unlimited-mileage insurance more "affordable" requires increasing
>cross-subsidies from lower-risk to higher-risk motorists.
>
>A few years ago voters in California approved Proposition 103, which was
>intended to reduce the weight placed on territory and increase the weight
>placed on mileage as a rating factor. Unfortunately, the insurance industry
>there refused to implement any sort of odometer audit system, and so they
>continue to place little weight on mileage and overweight territory. The
>current Insurance Commissioner there has allowed insurance companies to
>continue with these practices, but this issue is being reviewed and may
>change.
>
>
>Best wishes,
>-Todd Litman
>
>
>
>
>At 12:55 PM 5/20/2004 -0400, Walter Hook wrote:
> >we actually explored this in baltimore a few years (15!) back.  there is no
> >question that there is de-facto discrimination.  it was also anti-urban
> >discrimination.  if you cross out of the city limits even in the same
> >neighborhood with same demographic profile your rates tend to drop
> >dramatically.
> >
> >it's because statistical calculation of risk based on risk factors by zip
> >code (usual method as i recall) yields higher risk factors in low income
> >high crime neighborhoods etc.  The discriminatory element of this is that
>of
> >course you could be a very safe driver with a garage and are being
>penalized
> >because you live in a poor (which tends to correlate with minority)
> >neighborhood.
> >
> >Just as there is an effort to push pay as you go insurance (which we
> >completely support) ,there was an initaitive in Baltimore to shift to
> >insurance based only on the individual's driving record as the only
> >non-descriminatory method.  we had an actuary working on it with us from
> >GEICO, and he claimed you could assess risk in this way, and perhaps there
> >is precedent for it.  we had some support from the urban league.  not sure
> >if it ever went anywhere.
> >
> >Maybe the two issues could be linked up somehow.  its interesting.
> >
> >
> >walter
> >
> >
> >
> >
> >----- Original Message -----
> >From: "Jonathan E. D. Richmond" <richmond at alum.mit.edu>
> >To: "Asia and the Pacific sustainable transport"
> ><sustran-discuss at list.jca.apc.org>
> >Sent: Thursday, May 20, 2004 12:25 AM
> >Subject: [sustran] Re: Pay-As-You-Drive Pricing For Insurance
> >Affordability -Media Notice
> >
> >
> >
> >Eric, I think you have to be very careful about making allegations like
> >that without proof. Rates of crime tend to be higher in the inner city and
> >insurance costs are therefore higher. Insurance companies carefully
> >examine claims histories, conduct risk analyses, assign probabilities of
> >claims, and price premiums accordingly.
> >
> >To consider whether a racial bias exists you would need to examine the
> >calculations used to generate insurance prices to determine if they
> >reflected actuarial analysis correctly or if there was a statistically
> >significant bias.
> >
> >                                     --Jonathan
> >
> >On Wed, 19 May 2004, Eric Bruun wrote:
> >
> > > Todd,
> > >
> > > You forgot one additional important reason for Pay as You Drive (PAYD).
>In
> > > Philadelphia, auto insurance rates are very high. In fact, they are so
> >high
> > > that people of low or even moderate incomes can not afford both auto
> > > insurance and to buy a monthly transit pass. So once they buy insurance,
> > > they can no longer be persuaded to use transit. I am quite sure that
> >transit
> > > use would increase significantly with PAYD in any location where
>insurance
> > > rates are very high.
> > >
> > > Eric
> > >
> > > P.S. I think there is also a racial dimension to insurance pricing. In
> > > Philadelphia, there is an automatic huge penalty for having an address
>in
> > > the city proper, regardless of where one actually drives and the risks
>to
> > > which one is exposed. It seems that this is proxy for a racial penalty,
> > > since it is strictly illegal to use race as a basis for assessing rates.
> > >
> > >
> > > ----- Original Message -----
> > > From: "Todd Alexander Litman" <litman at vtpi.org>
> > > To: <CONS-SPST-SPRAWL-TRANS at LISTS.SIERRACLUB.ORG>
> > > Sent: Wednesday, May 19, 2004 10:21 AM
> > > Subject: Pay-As-You-Drive Pricing For Insurance Affordability - Media
> >Notice
> > >
> > >
> > > PAY-AS-YOU-DRIVE PRICING:
> > > Innovative Strategy Proposed To Increase Insurance  Affordability And
> > > Reduce Uninsured Driving
> > >
> > > Media Notice
> > > For Immediate Release
> > > 17 May 2004
> > >
> > > For information Contact Todd Litman
> > > Phone: 250-360-1560
> > > Email: litman at vtpi.org
> > >
> > >
> > > In a paper presented this week at a national meeting of the Casualty
> > > Actuarial Society (the professional organization for insurance risk
> > > analysts), researcher Todd Litman of the Victoria Transport Policy
> > > Institute describes a new strategy to increase vehicle insurance
> > > affordability and reduce uninsured driving called "Pay-As-You-Drive
> > >  Pricing."
> > >
> > > Pay-As-You-Drive (PAYD) pricing means that a vehicle's insurance
>premiums
> > > are based directly on how much it is driven. Premiums are calculated by
> >the
> > > vehicle-mile, so a low-risk driver pays 2-4¢ per mile and a high-risk
> > > driver pays 10-20¢ per mile. This lets motorists save money by reducing
> > > their mileage. PAYD can be a consumer option, so motorists select the
>rate
> > > structure that offers them the best value.
> > >
> > > U.S. households spend approximately $1,000 per year on average on
>vehicle
> > > insurance. Vehicle insurance can be major financial burden for
> >lower-income
> > > households, forcing many to forego vehicle ownership or drive uninsured.
> > > Various studies indicate that 10-35% of vehicles are uninsured, and this
> > > increases to more than 50% in some lower-income communities.
> > >
> > > According to Litman, "Pay-As-You-Drive offers a new way to provide
> > > affordable insurance and reduce uninsured driving. Currently, 'insurance
> > > affordability' means that even high-risk, lower-income motorists can
> >afford
> > > unlimited-mileage coverage. To achieve this, insurance companies are
> >forced
> > > to overcharge lower-risk drivers compared with their claim costs. PAYD
> > > redefines 'insurance affordability' to mean that higher-risk drivers
>must
> > > limit their mileage to the accident exposure level they can afford. It
> > > actually reduces crashes and insurance claims rather than just shifting
> > > costs, and eliminates the need for unfair cross-subsidies between risk
> > > classes."
> > >
> > > Litman describes how PAYD can help lower-income workers. "Consider the
> > > situation of a worker who loses his or her job, and because they no
>longer
> > > commute, drives fewer miles. With current pricing, they continue paying
> >the
> > > same vehicle insurance premiums, although both their income and their
> > > chance of having an insurance claim decline. People who are unemployed
> > > often find insurance costs a major financial burden, and so face the
> > > prospect of driving uninsured or giving up their car and the employment
> > > opportunities it provides. With PAYD, unemployed workers pay lower
> >premiums
> > > and so can afford to keep a car for essential trips, job searches and
> > > future employment."
> > >
> > > Pay-As-You-Drive pricing offers a number of additional benefits. By
> > > providing an incentive to reduce annual mileage it reduces accidents,
> > > traffic congestion, energy consumption and pollution emissions. It is
> > > currently being promoted by a variety of transportation, social equity
>and
> > > environmental organizations.
> > >
> > > Some major insurance companies have implemented PAYD pilot projects,
> > > including GMAC (General Motors Acceptance Corporation) Insurance,
> > > Progressive Insurance and Norwich Union. However, these programs require
> > > installation of special equipment in each vehicle, which increases
>costs.
> > > According to Litman, "Insurance will only become more affordable when
> > > insurance companies offer the simpler, odometer-based system recommended
> >in
> > > my paper."
> > >
> > > The full report, Pay-As-You-Drive Pricing For Insurance Affordability,
>is
> > > available at the Victoria Transport Policy Institute website at
> > > http://www.vtpi.org/payd_aff.pdf.
> > >
> > >
> > >
> > > Sincerely,
> > > Todd Litman, Director
> > > Victoria Transport Policy Institute
> > > "Efficiency - Equity - Clarity"
> > > 1250 Rudlin Street
> > > Victoria, BC, V8V 3R7, Canada
> > > Phone & Fax: 250-360-1560
> > > Email: litman at vtpi.org
> > > Website: http://www.vtpi.org
> > >
> > > - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
> > > To view the Sierra Club List Terms & Conditions, see:
> > >  http://www.sierraclub.org/lists/terms.asp
> > >
> >
> >-----
> >
> >Jonathan E. D. Richmond                               02 524-5510 (office)
> >Visiting Fellow                               Intl.: 662 524-5510
> >Transportation Engineering program
> >School of Civil Engineering, Room N260B               02 524-8257 (home)
> >Asian Institute of Technology                 Intl.: 662 524-8257
> >PO Box 4
> >Klong Luang, Pathumthani 12120                        02 524-5509 (fax)
> >Thailand                                      Intl:  662 524-5509
> >
> >e-mail: richmond at ait.ac.th               Secretary:  Ms. Nisarat Hansuksa
> >         richmond at alum.mit.edu               02 524-6051
> >       Intl:  662 524-6051
> >http://the-tech.mit.edu/~richmond/
>
>
>Sincerely,
>Todd Litman, Director
>Victoria Transport Policy Institute
>"Efficiency - Equity - Clarity"
>1250 Rudlin Street
>Victoria, BC, V8V 3R7, Canada
>Phone & Fax: 250-360-1560
>Email: litman at vtpi.org
>Website: http://www.vtpi.org


Sincerely,
Todd Litman, Director
Victoria Transport Policy Institute
"Efficiency - Equity - Clarity"
1250 Rudlin Street
Victoria, BC, V8V 3R7, Canada
Phone & Fax: 250-360-1560
Email: litman at vtpi.org
Website: http://www.vtpi.org