Pay as you drive car insurance? New study says a good idea

For several years now, Massachusetts environmentalists have said there is a better way of insuring drivers.

Called pay-as-you-drive, the idea has its roots in a link between miles driven and risk of accidents. Paying a certain amount of cents for each mile driven is a fairer way to insure drivers, many environmentalists say – and at the same time will encourage less driving, therefore emitting fewer greenhouse gases into the atmosphere.

Now, a new study commissioned by Conservation Law Foundation that looked at $502 million of claims on more than 3 million cars in Massachusetts, found that basing premiums even partially on mileage could end the practice of low-mileage drivers subsidizing higher-mileage ones.

The study estimates that switching all Massachusetts drivers to pure per-mile auto insurance pricing would reduce mileage, accident costs, and fuel consumption by 9.5% and cut two million tons of carbon dioxide emissions. Another model with a flat yearly rate, plus per mile pricing after the first 2000 miles, would reduce both figures by about 5%.

The study had some surprises, such as even though suburban and rural car owners tend to drive more than city dwellers, their rates could be lower than they currently pay for traditional insurance if they drive less than the average for their area.

The study, by Massachusetts Institute of Technology professor Joseph Ferreira, Jr. and Eric Minikel, a recent MIT grad, is the first to link real miles driven with actual claims filed – the insurance claims the two examined totaled 34 billion miles.

“We believe that the proven benefits to business, consumers and the environment spelled out in this study make a compelling case for adoption of PAYD in Massachusetts and beyond,” said John Kassel, president of Conservation Law Foundation.

While prior research has shown that risk increases with mileage, CLF officials say the study brings it down to an individual level.