Pay-as-you-drive motor insurance proposed in the US

A diverse group of transportation and environmental organisations led by investor and environmentalists coalition has unveiled a proposed performance standard to rate 'pay-as-you-drive' (PAYD) auto insurance policies in the US, which save consumers money when they reduce their vehicle travel.

Developed by the investor, environmentalist coalition Ceres and a coalition of organisations with extensive experience in auto insurance, the proposed PAYD rating system offers three levels of certification for insurance products, Gold, Silver and Bronze, based on how well they allow consumers to save money by driving less.

Pay-as-you-drive (PAYD) vehicle insurance bases premiums directly on the amount a vehicle is driven during the policy term, so motorists save money when they drive less and has the potential to save consumers an average $270 per vehicle insured, according to a 2008 report by The Brookings Institution.

Other rating factors such as driving record and vehicle type are incorporated in addition to mileage. Research shows that this price structure causes motorists to reduce their annual mileage. As a result:

  • Consumers save money. A typical motorist saves about $100 annually.
  • Roads are safer due to reduced traffic. Higher-risk motorists have the greatest incentive to reduce mileage.
  • Roads are less congested and cost less to maintain.
  • Energy is saved and pollution emissions reduced.

Several insurance companies now offer PAYD products, but some of these policies offer relatively small savings (often less than 1 per reduced mile) which provides minimal benefits.

To encourage more effective and beneficial PAYD products a coalition is developing a PAYD rating system similar to the LEED Green Building Rating System and Energy Star appliance standards.