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Introduction

The conventional auto insurance pricing system charges policyholders a fixed rate for a specified period of coverage. This system overcharges low-mileage drivers, who are a lower risk to the insurance companies, in order to provide affordable insurance for high-mileage and high-risk drivers.

This system creates incentives to drive more because it is a fixed charge, resulting in more energy use, pollution, and traffic congestion. It also encourages low-income individuals or those who have a second, rarely-driven car to go without insurance.

Pay-as-you-drive (PAYD) insurance policies are designed to correct these flaws. PAYD policies charge drivers more, the more they drive their car. They still incorporate traditional rate factors like driver history, location, and vehicle type, but charge on a per-mile or per-minute basis.

PAYD options more accurately reflect the true cost of driving a car – the likelihood of crashes, fuel use, emissions that contribute to pollution, and traffic congestion. It rewards drivers who minimize their driving. It also encourages low-income individuals or families with second cars to own auto insurance, decreasing the number of uninsured drivers on the road.

Photo courtesy of Corbis

PAYD has undergone several pilot studies and is supported by the U.S. Environmental Protection Agency, the National Organization of Women, Environmental Defense, and the Conservation Law Foundation. Consumers like PAYD options because they tend to save them money and give them control over their insurance costs. Insurance companies are reluctant to change because it might mean smaller premiums and an initial higher cost, but the likely increase in the number of policies and the decrease in the number of actual payouts will probably offset this difference.

This website offers the tools for you to create incentives for insurers to offer PAYD policies in your state. These tools include a model bill, talking points, press clips, a fact pack, links, and other background information.

We may have other useful materials on this subject which are not posted on our website. Please feel free to contact us at [email protected] or call our office in Madison, WI at (608) 252-9800.

If you’ve used this site and found it helpful or, if you have suggestions about how it could be made more helpful, please let us know. Please feel free to use the sample bill text included here in your state. If you do, please notify us.

This page was last updated on May 10, 2004.