Skip to main content

Escaping the "all you can eat" motor insurance buffet

The Freakonomics guys have just given Pay As You Drive (or PAYD) insurance some much-needed publicity.

Also called 'distance-based insurance', this turns motor insurance payments, which are usually a fixed cost, into a variable cost. This makes it possible to save money by driving less.

They write in their April 20 column in the New York Times Magazine.
Imagine that Arthur and Zelda live in the same city and occupy the same insurance risk pool but that Arthur drives 30,000 miles a year while Zelda drives just 3,000. Under the current system, Zelda probably pays the same amount for insurance as Arthur.

While some insurance companies do offer a small discount for driving less — usually based on self-reporting, which has an obvious shortcoming — U.S. auto insurance is generally an all-you-can-eat affair. Which means that the 27,000 more miles than Zelda that Arthur drives don’t cost him a penny, even as each mile produces externalities for everyone. It also means that low-mileage drivers like Zelda subsidize high-mileage drivers like Arthur.

They report that next month the large US insurer, Progressive, will actually start a comprehensive PAYD plan called MyRate.

The column offers some perspective on the slow progress of this seemingly obvious winner of an idea:
If PAYD is such a great idea, why has it taken so long? There are at least three reasons: the tracking technology has only recently become affordable; insurers were anxious about drivers’ privacy concerns; and there was a substantial risk for whichever company was first to offer PAYD on a large scale.

They also provide background and links on the issue at their blog.

For more background on PAYD insurance see also Todd Litman's efforts to promote the idea.

Many tonnes of greenhouse gases depend on how this plays out!

Comments

Popular posts from this blog

Podcasts on urban mobility and urban issues: a LONG list

Below is my increasingly long list of podcasts on urban mobility and/or urban issues. 

If you are not yet a regular podcast listener, you need to download a podcast-listening app to your phone, tablet or desktop and subscribe (it's free) to the podcasts that interest you.

UPDATE 1: This list has many podcasts but obviously I hope you will try mine! They are Reinventing Transport and Reinventing Parking.

UPDATE 2: I have added FOURTY ONE more since this was first published. Thanks to everyone who has sent tips.

Transport-based City Types and their Trajectories

I want to help you get perspective on your city and its transport system with the help of simple city types based on their dominant transport modes, such as Walking Cities, Transit Cities, Bus Cities, Motorcycle Cities and Car Cities.

This way of thinking about cities is a heuristic (an imperfect mental model or technique that is nevertheless good enough to be helpful). And it obviously is imperfect. For example, real cities often have various modes of transport, and modern cities are really all some kind of hybrid city type.

But it is still useful, especially if we add the idea of a Traffic Saturated City, which is a very different beast from a Car City. It is important for change-makers in Traffic Saturated Cities to be aware they are not in automobile dependent cities yet.

Options for digesting this: 
Read the brief article below and study the diagrams. They complement the podcast. For more depth, LISTEN to the 37 minute audio with the player above. A full transcript of the podcast is…

Parking: What's Wrong and How to Fix It

We should stop planning parking the way we plan toilets. I began with that odd (but true) statement to get your attention, obviously. But I am also serious.

Many people think parking policy is boring, which is unfortunate, because boring or not, parking is important.

If you care about cities and urban mobility, you really need to pay some attention to parking.

Most local governments really do plan parking the same way they plan toilets (using minimum parking/toilet requirements) and it is disastrous. More on that below.

Municipalities do this because of another mistake - treating on-street parking as a public good (and therefore failing to manage it properly). Please take note: parking in cities is generally NOT a public good.

These two mistakes cause huge problems:
1. on-street parking problems, which worsen many other mobility and street problems, and  2. a slow-motion disaster of increasingly excessive (but under-used) off-street parking supply which fuels car dependence.

It's …