With more and more state governments searching for ways to reduce their residents’ environmental impact, many are looking at pay-as-you-drive (PAYD) car insurance, not just as a way for people to save money, but as a way to encourage less traffic and fewer carbon emissions. Why? Because PAYD programs base car insurance premiums on actual mileage readings rather than annual estimates, and give discounts if mileage is kept below certain target thresholds.
But which states are looking at this kind of insurance? Several. Mere weeks after California’s approval of that state’s first two PAYD programs, insurance regulators in both New York and Massachusetts announced that they, too, were investigating PAYD as a way to reduce pollution and traffic congestion.
While New York is still in the early stages of such investigation, Massachusetts has included a PAYD pilot program in the Department of Energy and Environmental Affairs “Clean Energy and Climate Plan for 2020.” That report, which was released last week, estimates that if PAYD were to be offered statewide, the result could be a reduction in vehicle miles traveled ranging from 2 to 9.5%.
The premise, of course, is that since PAYD programs offer incentives (discounts) for driving less, consumers will respond by doing exactly that. Since insurers consider lower-mileage drivers to be relatively low risk, the discounts make sense from a logistical point of view, because the fewer miles a motorist spends behind the wheel, the less likelihood there is of an accident that requires insurers to pay out claims.
According to five-year-old data released in a report from the Brookings Institution, motorists who logged only 5,000 miles a year had roughly half the number of bodily injury claims and fewer than half the number of property damage claims as those who drove 30,000 miles a year.