Pay-as-you-drive automobile insurance provides discounts based on actual vehicle mileage, with the highest discounts for those who drive the least.  Pay-As-You-Drive pricing can help achieve several public policy goals including fairness, affordability, road safety, consumer savings and choice, and reduced traffic problems. It helps reduce traffic congestion, road and parking facility costs, and environmental impacts. It reduces the need for cross-subsidies currently required to provide “affordable” unlimited-mileage coverage to high-risk drivers. It can particularly benefit lower-income communities that currently pay excessive premiums.

Vehicle insurance is a significant portion of total vehicle costs, averaging about $800 per vehicle-year in the U.S. A typical motorist spends almost as much on insurance as on fuel. It is the largest vehicle cost for many lower-income motorists. Insurance is currently considered a fixed cost with respect to vehicle use; a reduction in mileage does not usually provide a comparable reduction in insurance premiums.  As a result, current insurance pricing overcharges motorists who drive less than average and undercharge those who drive more than average each year in a price category.  Since lower-income motorists tend to drive less than average, current insurance pricing is regressive. It forces lower-income motorists on average to subsidize the insurance costs of higher-income motorists.

Pay-As-You-Drive insurance reflects the market principle that prices should be based on the cost of providing a good or service. Research indicates that within existing price categories, annual claims increase with annual vehicle mileage.  Mileage is just one of several factors that affect crash rates. It would not improve actuarial accuracy (i.e., how well premiums reflect insurance costs for a particular vehicle) to use mileage instead of other rating factors, for example, to charge all motorists the same per-mile insurance fee, but accuracy improves significantly if annual mileage is incorporated in addition to existing rating factors. Any other price structure overcharges low-mileage motorists and undercharges high-mileage motorists within a rate class.  An EPA study found that pay-as-you-drive insurance applied throughout a region could reduce congestion delays by 10%-25%.  

16.a    The Commonwealth should begin a pilot program that encourages insurance carriers to offer a pay-as-you-drive insurance options to motorists

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