Frequently Asked Questions
How is it applied?
Basic PAYD (the system we recommend) changes the unit of exposur
e from the vehicle-year to the vehicle-kilometer, so for example, rather than paying $1,000 annually a motorist pays 5¢ per kilometer, based on
odometer readings verified by brokers or a digital photo. At the beginning of the policy term motorists pay for a year’s worth of insurance, as they do now, and settle when the policy is renewed; if they drove less than their prepaid kilometers they receive a rebate, if they drove more they owe for the unpaid kilometers, at a slightly higher rate (say, 5.3¢ per additional kilometer) to account for ICBC’s foregone interest. It could be a consumer option or implemented on all personal vehicles.
How are per-kilometer premiums calculated?
Premiums are calculated by dividing current annual premiums by average annual kilometers for each rate class. ICBC premiums currently average $1,280 per vehicle-year and personal vehicles average about 20,000 annual kilometers, so PAYD premiums would average about 6.4¢ per kilometer. All existing rating factors are included, so a motorist who currently pays $1,600 annually would pay twice per kilometer as one that pays $800 annually.
How does it affect vehicle travel?
The 6.4¢ per kilometer average PAYD premium is equivalent to a 64¢ per liter fuel price increase, although it is not a new fee, just a different way of paying an existing fee. Based on experience with other transportation price changes, experts predict that PAYD pricing would reduce affected vehicle-travel 10-15%, with greater reductions by higher risk motorists who currently pay higher annual premiums.
Aren’t other risk factors more important than mileage?
Annual mileage is one of several significant risk factors. It would not be actuarially accurate to use mileage instead of other rating factors, by charging all motorists the same per-kilometer premium, but premiums become far more accurate if mileage is incorporated with other rating factors through PAYD pricing.
Who benefits, who loses?
PAYD insurance can provides direct and indirect benefits:
- Motorists who currently drive less than their rate class average save money.
- Motorists who drive about their rate class average and reduce their mileage would also save money.
- Motorists who drive significantly more than average for their rate class average would pay higher premiums, but benefit most from reduced congestion and accident risk.
How does PAYD affect suburban, rural and lower-income motorists?
Because insurance rates reflect territory (where motorists reside), PAYD pricing does not increase average premiums for any geographic group: only motorists who drive more than average for their territory would pay more, and if motorists reduce their vehicle travel as predicted, most suburban and rural motorists would save money and enjoy other benefits. Since annual vehicle travel tends to increase with income, and lower-income motorists tend to be price sensitive (they are more responsive to money saving opportunities) PAYD tends to be very progressive with respect to income.
How does PAYD affect traffic safety?
Extensive research indicates that PAYD pricing could provide large safety benefits. Since higher risk motorists would pay larger premiums, they should reduce their mileage more than average, and since most casualty crashes involve multiple vehicles, the reduction in crashes and claim costs should be proportionately larger than the reduction in mileage, and increase safety for all road users.