DOT Pursues Pay-As-You-Drive Insurance, Which Could Cut Traffic

At all income levels, most drivers would save money if they paid for insurance by the mile. Image: Brookings Institute.
At all income levels, most drivers would save money if they paid for insurance by the mile. Image: Brookings Institution.

It could reduce driving statewide by more than eleven percent, put money in the pocket of two-thirds of the state’s motorists and put little to no strain on the government budget. That sounds-too-good-to-be-true idea is called pay-as-you-drive insurance, and the city DOT is looking into how it might work in New York.

The idea is simple. Right now, most car insurance policies cost the same whether you drive 500 miles in a year or 50,000. While some of the costs of car-ownership change based on how you drive, like fuel or maintenance, insurance doesn’t. If insurance premiums rose with every mile you drove, it would be one more incentive for drivers to keep the mileage down.

In fact, it would be a pretty hefty incentive, according to a 2008 Brookings Institution report on the subject [PDF]. They found that if all drivers paid for insurance by the mile, total driving would drop by eight percent. That’s the equivalent of gas prices jumping by $1 per gallon, but in the form of a carrot, not a stick. In New York State, where insurance premiums are high, they estimated it could provide an 11.5 percent reduction in driving.

There’s also a big market for pay-as-you-drive insurance. As you’d expect, those who drive more also tend to crash more and cost the insurance companies more. In essence, low-mileage drivers subsidize high-mileage drivers on average. With pay-as-you-drive, insurers could lure away the low-cost drivers with lower rates, a win-win for both those groups.

And because of the uneven distribution of miles driven, two-thirds of drivers nationwide would save money under a pay-as-you-drive system, according to the Brookings report. Since lower-income drivers tend to drive shorter distances already, the distributive effect of the policy is also progressive, according to Brookings.

So why isn’t pay-as-you-drive already more popular? One reason is technology: in the past, it was difficult to accurately track how far people drove. With both electronic odometers that are harder to tamper with and GPS devices, however, measurement isn’t a big obstacle anymore.

The other reason there isn’t more pay-as-you-drive insurance, however, is the thicket of regulation surrounding car insurance, which makes pay-as-you-drive difficult to issue. It can run afoul of requirements that insurance costs be clearly stated before the time of purchase, for example. Conservative insurance commissioners may also shy away from such a fundamental change in how car insurance is priced. The Brookings report cited one New York State insurance regulator as saying that pay-as-you-drive would be inequitable, as upstate drivers would end up paying more while downstate drivers saved.

Thus while pay-as-you-drive is slowly starting to spread on its own — in New York, Progressive insurance is the only company to offer it, according to the New York Post, though not in a pure form — it’ll take government action to clear a path for it. California’s taken the lead on the issue, as Matthew Roth reported at Streetsblog San Francisco, and Massachusetts just announced it was going to push pay-as-you-drive as part of a major climate initiative. Now New York City wants to join them.

So far, DOT has just put out a request for expression of interest in the idea [PDF], a very preliminary step in any process. It’s looking for information about what barriers currently stand in the way of pay-as-you-drive in New York, what it would take to make a program successful, and different ways the data might be collected.

One unanswered question, though, is what power the city has over the issue in the first place. Auto insurance is regulated at the state level. DOT wouldn’t answer any questions on the issue, however.

We also have a call in with the state Insurance Department to see what regulations currently govern pay-as-you-drive insurance.

Filed Under: DOT

  • vnm

    This is a terrific idea. Why should someone who drives 500 miles a year pay the same insurance rate as someone who drives 50,000?

  • Larry Littlefield

    While pay as you drive insurance would be more specific, I wouldn’t say that how far and under what circumstances one drives is not taken into account today.

    Every year I have to report to my insurance company my odometer reading, so they know how many miles I have driven. The work or school address of every licensed driver must also be reported, along with how each gets there.

    Thus my insurance company already knows how far we drive, and that we don’t drive during rush hours. And this qualifies me for lots of discounts.

    So what would pay-as-you-drive do? Well, the company would presumably find out that we do most of our driving on a mileage basis outside New York City, we never drive at rush hour, and almost never drive at night.

    I think recording speed and emergency stops is a greater part of what electronic monitoring might be about.

  • Driver

    Larry, there is a big difference between paying as you drive on a mileage basis and electronic monitoring by your insurance company so they know where you go and when. The latter is somewhat disturbing, and it amazes me that we as a society take our liberties for granted to entertain such an idea.
    Why should a tax on mileage (essentially what this is) go through the pockets of the insurance companies? While I oppose the idea of such a tax, it seems if one were to be implemented it could be done directly by the state as part of the MV inspection process. No need to line the pockets of the insurance companies even further.

  • Brandon

    Driver, tax on mileage as it may be, its not something being added. Insurance is already paid by every driver, this will just level the playing field for those who drive less.

    Ultimately, my hope would be that this could make more people commute by transit into the city rather than driving, and depending on where they live, ultimately decide that they may not need to own a car at all. I for one hope Zipcar et al. continue to grow fast.

  • Danny G


    The fact that insurance companies could use this to make additional money should not people who hate insurance companies from seeing two key benefits: reducing VMT (also effectively road wear and tear and accidents), and reducing rates for a majority of drivers.

    The money’s either gonna go to the government to spend on future wars and Chinese debt, or insurance company CEO’s, to spend on something or other. The 20th century American obsession of public vs. private is less important than just going with whatever gets quantifiable results.

  • Why not pay for insurance as part of the gasoline charge at the pump? This way we accomplish the same mileage goal, benefit those who have more fuel-efficient cars, and make sure EVERYBODY carries insurance. Right now, lots of people (up to 28% — Yikes! — in California although unsure of the date of that figure) are driving without insurance.

    Obviously, those with all-electric cars could use the mileage method and pay separately.

    A quick google search shows that this is not an original idea:

  • Joe R.

    Great idea in my opinion given the number of uninsured drivers in NYC. We should go one step further however, and let the state both collect the mileage charge and provide the insurance. This way you eliminate the extra costs associated with the profit the middle man ( i.e. insurance companies ) skim. You also provide uniform insurance coverage to all.

  • MRN

    The Brookings report cited one New York State insurance regulator as saying that pay-as-you-drive would be inequitable, as upstate drivers would end up paying more while downstate drivers saved.

    I don’t understand this statement – yes upstate drivers would pay more because the drive more. Is it inequitable that they pay more for gas? Obviously not, because they use more gas.

  • MRN

    Why not pay for insurance as part of the gasoline charge at the pump?

    While it may seem elegant, it’s not a fair way to charge for insurance – you aren’t going to input your vehicle type at the pump, not all vehicles are modern enough that insurance companies would trust their odo’s, and the amount of work between all the various gasoline companies and the insurance companies would be a total nightmare.


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