Pay-As-You-Drive Car Insurance

The latest New York Times column by pop economists Steven Levitt and Steven Dubner—of Freakonomics fame—focuses on the negative externalities associated with driving. In other words, the hidden costs that are distributed throughout society each time a single driver starts up a car. According to Levitt and Dubner, the three major auto-related negative externalities are worth $20 billion dollars a year in carbon emissions costs, $78 billion dollars a year in traffic congestion costs, and $220 billion dollars a year in accident-related costs.

For traffic congestion and carbon emissions costs, there are already some built-in deterrents—such as wasted time and constantly rising fuel costs—that incentivise driving less. Unfortunately, drivers who only drive a few thousand miles a year, and are therefore much less likely to be involved in an accident, have no similar incentives, such as savings on their car insurance.

Thanks to a pilot program at Progressive Auto Insurance, that may change in the coming years. Drivers that sign up for Progressive’s MyRate program will have a wireless device installed in their cars that will calculate how many miles they drive, allowing them to pay only for the accident risk they incur in each mile. According to the Brooking Institution, a widespread pay-as-you-drive approach to calculating car insurance rates could save Americans around $52 billion dollars a year.


  • Interesting

    Doesn’t sound bad…but you know people are going to go into a war over privacy rights, etc. Would be nice if that wireless device also reported aggressive driving behavior, then I wouldn’t have to worry about idiots weaving through lanes and literally “flying.”

  • Need2Change

    I guess this means that my car insurance goes up since I drive over 20K/year.

    I guess I need to either sale my home, get a new job, or pay more.

    I also can’t drive 70 miles to my sailboat as often, or I need to get another hobby.

  • Holly

    so true,it’s amazing the crazies out there who drive like they are the only ones on the road and rarely get caught nearly killing me and crushing my car if i dont look out for them. i bet they get a cheaper rate on their insurance too. i would be in full support of a tracking device that keeps track of speed to discourage those nuts. brilliant!

  • meagan

    I think this is a spectacular idea. Need2Change, you’re exactly right: under such a plan, those who drive more will pay more. Therein is the logic of negative externalities, and the concept of being responsible for our choices. If the price of paying more for driving more is too much, perhaps there will be actual behavior change in the driving habits of Americans.

  • thirsty

    I think this is a great idea and long overdue.

  • Anonymous

    Wow, technology has come a long way.
    If this takes off, I see urban congestion pricing following closely behind. Cities have always wanted a way to charge fees for using their roads.

  • MattKelly

    This is genius! I live in LA with a 900 zip code, one of the more expensive in the nation. I am moving closer to work to be able to walk to the office-its a quality of life issue for me-so to have an even lower insurace rate because of this would be amazing. This whole philosophy would be great if it could be deployed throughout our civilization–pay as you go. I think we’d see alot of consumption, births, traveling etc. decline.

  • J.Knecht

    Inside sources tell me that the device which is attached the car’s computer (generally in newer, post 1999 production cars, and not compatible with hybrids) will also monitor things like sudden braking, so aggressive drivers will pay extra. Trip info will be accessible by the user on the web, and privacy concerns should be allayed somewhat by the fact that while distance driven will be recorded, location will not be. It is scheduled for rollout in Illinois in the fall.

  • Lucky

    What it really means is that low mileage drivers with safe driving habits will be entised to switch to Progressive. The remaining policyholders will represent a higher risk pool and their rates will have to increase to reflect the increased risk in the pool.

    In other words, if this program succeeds it affects all of us in one way or another.

  • alicewonderland42

    This sounds like a great idea for people who don’t use their cars so often. I work for a New York green contractor who provide free bus/subway passes that I use to get around the city each day. I only use the car for family vacations, so having more realistic car insurance that accounts for only the small amount of time during the year I actually use the car would be fantastic.

  • Illeana

    I feel this is a good way of paying insurance…I too am having Pay As You Go Car Insurance as it enables you to pay for the days you are actually using your car and not for all the times it lying unused parked outside. In this way I am able to save loads of money annually. This type of insurance is simple and convenient. All you have to do is install a tracking box into your car. This tracking box records details like mileage; distance traveled etc and transmits all the information to the insurance company.

  • Isabell

    Good Article. The ‘pay as you go car insurance’ really saved my money a lot. I use my car very often. And for this reason I have installed tracking box into my car and this records details like mileage; distance traveled, etc., and transmits all the information to the insurance company. This tracking box is also capable of locating the exact location through G P S system or habitual features of your driving like abrupt starting or stopping of the car, hard breaking and excess and heavy acceleration. This can also be easily switch off insurance premium if you won’t be driving your car and don’t need it.

  • Geo R

    The idea seems interesting but will it really work to stop carbon emission. cars aren’t the only cause of carbon emission. what about the other pollution causing agents?

  • Brenda

    There is another issue I see with this type of insurance, are they going to figure in where you drive? I live in a rural area where traffic is nothing like you see in the big cities. Wouldnt the risk be lower, at least theoretically? Of course, there is also the issue, like someone else mentioned, of privacy! Before you know it the insurance companies will know as much about you as the IRS… lol.

  • Smith

    I’m in favour of making Insurance and VED part of the fuel price. That way nobody can be uninsured and nobody can avoid their car tax. It would need the tax on fuel to come down quite a lot, though.

  • TwylaSharmaine

    This initiative is great as it sounds. It is logical to have an insurance that fits your needs. I once had a discussion with a home insurance Ireland agent and he quoted: “I know nothing about racing and any money I put on a horse is a sort of insurance policy to prevent it winning”. I think he tried to tell me that an insurance policy shouldn’t be the same for all. If I drive less than I should pay less, that’s how the things work.

  • Manish

    ..