While other insurance companies belittle those who can't or don't drive, another -- Progressive -- is living up to its name by being the first major US insurer to offer a "Pay As You Drive" policy, allowing customers who drive less to pay less for coverage.
As explained in a New York Times "Freakonomics" article on the negative externalities of driving, Progressive will offer "MyRate" PAYD plans in six states.
Drivers who sign up for MyRate will install a small wireless device intheir cars that transmits to Progressive not just how many miles theydrive but also when those miles are driven and, to some extent, how theyare driven: the device measures the car’s speed every second, fromwhich Progressive can derive acceleration and braking behavior. Whichmeans that Progressive will not only be able to charge drivers for theactual miles they consume but will also better assess the true risk ofeach driver.
The Freakonomics guys believe that PAYD insurance may be the most practical and likely means to curtail driving in the US, where other methods, like congestion pricing and gasoline taxes, are politically unpopular -- even though congestion, carbon emissions and car crashes cost Americans more than $300 billion per year, according to studies cited in the article.
Regardless of its societal benefits, as a private sector initiative PAYD is undoubtedly a risky move for the first company to try it.
But if Progressive’s PAYD insurance can induce some of itshigh-mileage customers to drive less and especially to drive moresafely, resulting in smaller claims payouts for Progressive and fewernegative externalities for everyone, then it could truly be awin-win-win situation.
Except, perhaps, for Progressive’s rivals.
Photo: ASurroca/Flickr
