Gov. Hochul's Big Tech-backed push to cut auto insurance costs by eviscerating crash victims's rights ignores a simple policy fix that would achieve the same goal while cutting back on driving, traffic violence and pollution — and without throwing New Yorkers injured in crashes under the bus.
The governor should make insurers in the state offer so-called pay-as-you-drive insurance, which would tag premiums to how many miles motorists actually travel, rather than the lump-sum status quo, which charges the same no matter how much you use your car.
The policy could cut driving — and therefore the likelihood of crashes — by as much as 30 percent among high-risk motorists, and trigger a virtuous cycle of safer streets and cleaner air, according to experts who have studied the idea for decades.
"Everybody is better off, you’ve got less crash risk, less pollution and less traffic congestion, because you’re rewarding this very good thing, which is mileage reduction," said Todd Litman, executive director of the Victoria Transport Policy Institute in British Columbia, Canada, who has long studied the policy. "It has absolutely stupendous potential, and so it’s shocking that it hasn’t gotten a lot of traction."
Pay-as-you-drive insurance, also known as pay-per-mile or usage-based insurance, saves money because drivers' premiums are based on how much they use their car, putting a direct price tag on the inherently risky activity of operating a two-ton vehicle, said another expert who has also analyzed the progressive policy.
"A per-mile cost reflects the actual economics of how risky the activity [of driving] is [so] most people would choose to drive less," said Pascal Noel, a professor of finance at the University of Chicago’s Booth School of Business.
The policy could reduce insurance company profits, experts say.
That could explain why Hochul has declined to latch onto the idea and, instead, is seeking to lower car insurance costs by eroding the rights of crash victims to recover damages in court, which has drawn ire from people injured in wrecks and skepticism from state lawmakers.
Nevertheless, the governor is trying to enact the changes through the state's opaque annual budget negotiations this spring, with the backing from shady and moneyed interests, like Uber and the Partnership for New York City.
How pay-per-mile works
Car insurers currently set premiums that don't change, regardless of whether policyholders drive 10 miles a year or 10,000 miles — even though the 10,000-mile motorist clearly poses a much larger risk.
Instead, companies determine rates based on risk factors like the driver's age, driving history, and also factors with no relation to someone's safety behind the wheel, like credit scores and ZIP codes.
"People are not charged based on the amount that they drive, so that leads people to drive more, and so insurance costs are more than they would necessarily be if you charged them per mile," said Noel.
Pay-per-mile insurance recognizes the basic fact that driving inherently adds risk and costs to society, and sets insurance premiums accordingly.
Crashes are the leading cause of injury-related deaths in the state, with an average of 1,098 fatalities, 12,093 hospitalizations and 136,913 emergency department visits each year — or one emergency visit every four minutes — according to the state Department of Health.
Fatal and serious traffic crashes cost the state $135.4 billion in medical care, lost productivity, legal and court costs, travel delay, pollution, and property damage in one year alone, according to 2023 estimates by TRIP – or roughly $6,770 per New Yorker, regardless of whether they drive or not.
That's worth repeating: regardless of whether they drive or not.
A good example for how basic economics can have an outsized influence on safety is congestion pricing. Once the governor established a $9 fee to drive into Manhattan below 60th Street, the number of vehicles entering that zone declined — and so did crashes and injuries.
No matter how often motorists use their car, they currently get a set rate for the year — a statewide average of $1,935.
If the average annual driving is, say 10,000 miles, pay-per-mile insurance could tag that average to the premium, or about 19 cents per mile. So if someone drives less than 10,000 miles, they get a rebate for every mile below that threshold, or they pay more if they exceed it.
Drivers would send in odometer readings once a year, much like a meter reading to lower a utility bill, or use technology like a transponder or a smartphone app to track driving more closely.
Widespread benefits
Litman estimates that these policies would reduce vehicle travel by more than 10 percent across the board, and by 20-30 percent among the highest-risk motorists, since their steeper premiums would discourage driving even more.
Currently, the system actually encourages motorists to drive more to get their "money's worth" for what they pay in insurance, Litman argued.
"What’s your incentive to leave your car at home and take the bus" if you've already paid for the insurance, he told Streetsblog. "Pay-as-you-drive reverses that."
What's more, in the current system, people who drive less are actually subsidizing people who drive a lot and pay the same price, even though the latter create more risk.
"Our current insurance is a huge cost subsidy from lower-risk drivers to higher-risk drivers," Litman said. “It’s a classic case of a policy that encourages bad behavior."
Smartphone apps measuring risky driving behavior have also been found to reduce speeding by up to 13 percent, hard braking by up to 21 percent, and rapid acceleration by up to 25 percent, according to a study — by the American Automobile Association, no less.
The savings from pay-per-mile insurance could be enormous.
The Brookings Institution found that pay-per-mile would save roughly $270 per car in 2009 — or more than $400 adjusted to inflation — and cut miles driven by 8 percent. Total social benefits could be around $50 billion nationwide, the think tank estimated at the time, which translates to more than $75 billion today.
For comparison, Hochul has said her proposals will reduce premiums by only $300 on average, though it's unclear if insurers would actually lower their prices in response to the governor's reforms. (Several lawmakers in Albany want insurers to promise in writing to lower rates, Streetsblog Empire State reported.)
Hochul could simply direct her Department of Financial Services commissioner to write a new rule mandating pay-per-mile insurance, Litman said.
There's also a bill in the state Assembly to provide for insurance premiums relying on mileage and safe driving behavior, but it never made it out of committee. The bill's sponsor, Assembly Member Steve Stern (D-Suffolk County) did not respond to requests for comment.
Hochul's just shifting crash burden
Gov. Hochul plans to lower insurance costs by chipping away at New Yorkers's rights to sue for damages after a crash, narrowing the definition of "serious injury," which entitles victims to more compensation than the $50,000 minimum, and by barring lawsuits from someone a jury determines to be more than half at fault for a crash.
Hochul claims the current regulations allow for ambulance-chasing lawyers to pursue "jackpot payouts," but that rhetoric echoes the larger tort reform movement of going after supposedly frivolous lawsuits while actually reducing people's rights to sue for real damages.
Hochul's proposals simply move the economic cost of driving onto more vulnerable people, Litman said.
"They’re forcing somebody who’s injured to bear a bigger share of the cost," said Litman. "It’s perpetuating unfairness.
“We act as if it’s a favor to keep driving affordable for high-risk drivers," he added.
When lawmakers try to cut the price of insurance, they're often just shifting that cost around, whereas pay-per-mile actually reduces the overall burden by reducing driving and crashes.
"The savings reflect that increased safety, there’s just fewer dollars needed to compensate for crashes," Litman said.
The governor also vowed to crack down on insurance fraud, such as staged crashes and drivers using out-of-state plates, and she wants to offer lower rates for drivers who opt into programs that track their driving, such as dash cameras or smartphone apps.
That kind of tracking technology has become more popular in recent years, but it has not caught on broadly due to privacy concerns, said Noel, the University of Chicago professor.
"Those can get increasingly nanny-state, and so some people are uncomfortable having that information shared," Noel said.
Insurance resistance
Pay-per-mile has not been adopted on a large scale — largely because it threatens to undercut insurers' bottom line and because drivers are skeptical of paying as they go, experts said.
Insurance companies make money in two main ways. They can earn profits by paying less out in claims than they take in in premiums from their policyholders.
The other way is by investing the money from those premiums until the insurer has to pay it back out in claims, also known as insurance "float." Berkshire Hathaway Chairman Warren Buffett once described float as "money that we hold that doesn’t belong to us."
If insurance companies have less cash to hold due to lower premiums, they have less money to invest.
“The insurance industry makes its profit by holding your money for a maximum amount of time," Litman said. "If there’s a strategy that reduces crashes, and therefore reduces claims, and therefore reduces premiums … they actually lose profits."
There are also more subjective reasons why pay-per-mile hasn't gained momentum.
More than 100 years of car culture has conditioned Americans to no longer see driving as dangerous. Meanwhile, each individual thinks of themselves as a safe driver — a notion that is magnified by messaging from the Big Insurance, Big Auto and Big Highway: driving is safe, as long as you behave.
“The whole psychology and the whole industry interest is to ignore mileage as a risk factor, and therefore ignore the basic and fundamental justification for pay-as-you-go insurance," Litman said.
There's also a "status-quo bias," Noel said, whereby drivers prefer paying a flat fee and could see a mile-based charge as more taxing, even if it likely saves them money.
"People are used to not having to pay for every individual mile that they drive," Noel said, though they do the equivalent for electricity and gas.
Some companies — Nationwide, Allstate and the tech startup Metromile — offer partial pay-per-mile coverage, according to the personal finance site MoneyGeek, but those plans aren't available in New York, and Streetsblog could not find any plans in the state that offer pay-per-mile.
A spokesperson for Hochul's office noted that Hochul's proposals will incentivize motorists to take defensive driving courses and opt into monitoring tools to lower their insurance bills, and that she supports congestion pricing, which cut trips and vehicle miles traveled in Manhattan.
The rep, Sean Butler, reiterated Hochul's claim that insurance fraud is a rampant problem in the state, though little evidence has ever been produced to back up that claim.
But the governor is apparently open to pay-per-mile, if the insurance companies submit a policy for approval.
"New York State does not prohibit insurers from seeking to implement a program that is rated-based on miles driven," Financial Services spokesperson Ciara Marangas said in a statement. "DFS will always meet with an insurer interested in filing a new program."
