January 06, 2015
It is often said that the environmental movement has less creativity than a dead clam. Nothing demonstrates this point better than the lack of interest in promoting pay by the mile auto insurance.
I am reminded of this issue by a piece on Morning Edition that discussed how the recent drop in gas prices will be associated with thousands of more deaths in traffic accidents. The point is simple: people will be driving more and faster, therefore there will be more accidents and more deaths.
This brings up pay by the mile insurance since the point of the piece is that high gas prices gave people an incentive to drive less and more slowly. If insurance were on a pay by the mile basis it would also give people an incentive to drive less and ideally more safely.
The arithmetic is straightforward and striking. The average insurance policy is around $1,000 a year. The average driver puts in roughly 10,000 miles a year on their car. (These are rough numbers, but last time I checked they were in the ballpark.) This comes to 10 cents if insurance were paid on a per mile basis.
If a typical car gets 20 miles a gallon, then having insurance paid on a per mile basis is the equivalent of a $2.00 a gallon gas tax in discouraging driving. That should be a big deal and the sort of thing that environmentalists should be pushing for, since it is likely far more politically feasible than a $2.00 a gallon gas tax.
Just to be clear, this is not on average increasing insurance costs. It will redistribute them from people who drive relatively little to people who drive a lot. (Insurers already have some differences based on miles driven, but they don’t come close to reflecting the actual difference in risks — as they will tell you.)
Also, charging per mile doesn’t prevent insurance companies from factoring in driving records or distinguishing between rural and urban miles. The insurers know where people live and they know their driving records. These could be easily factored in when setting the per mile rates.
Anyhow, a modest subsidy for people to buy pay by the mile policies could go a long way in changing incentives and reducing driving and greenhouse gas emissions. (Note the adverse selection goes in the right direction here. Low mileage drivers would opt for pay by the mile policies leaving high mileage high risk drivers in the conventional insurance pool.)
This should have been an obvious policy to push for those who want to stop global warming, but it might require a bit of new thinking.
Comments