PAYD in BC Backgrounder – This short documents provides basic information on why and how to implement Pay As You Drive insurance in British Columbia.
Hamed Ahangari, Jason Outlaw, Carol Atkinson-Palombo and Norman Garrick (2014), “An Investigation into the Impact of Fluctuations in Gasoline Prices and Macroeconomic Conditions on Road Safety in Developed Countries,” Transportation Research Record 2465 .
Ask Joeanne (2012), “Why Not Pay-As-You-Drive Insurance?,” Globe and Mail.
Michelle Babiuk (2008), Distance Based Vehicle Insurance: Actuarial and Planning Issues, B.A. (Hon), Masters Thesis, Community and Regional Planning, University of British Columbia.
BC (2016), Climate Leadership Plan, British Columbia.
Jan Willem Bolderdijk and Linda Steg (2011), Pay-As-You-Drive Vehicle Insurance As A Tool To Reduce Crash Risk: Results So Far And Further Potential, Discussion Paper No. 2011-23, International Transport Forum.
Jason E. Bordoff and Pascal Noel (2008), Pay-As-You-Drive Auto Insurance: A Simple Way to Reduce Driving-Related Harms and Increase Equity, Brookings Inst.
Paul J. Burke and Shuhei Nishitateno (2015), “Gasoline Prices and Road Fatalities: International Evidence,” Economic Inquiry (DOI: 10.1111/ecin.12171)
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Chi, et al. (2011), A Time Geography Approach to Understanding the Impact of Gasoline Price Changes on Traffic Safety, TRB
Chi, et al. (2013), “Gasoline Price Effects on Traffic Safety in Urban and Rural Areas: Evidence from Minnesota, 1998–2007,” Safety Science, Vol. 59, pp. 154-162
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Aaron Edlin (1998), Per-Mile Premiums for Auto Insurance, Dept. of Economics, University of California at Berkeley.
Aaron S. Edlin and Pinar Karaca Mandic (2006), “The Accident Externality from Driving,” Journal of Political Economy, Vol. 114, No. 5, pp. 931-955.
Ernst & Young (2017), ICBC Affordable and Effective Auto Insurance – A New Road Forward for British Columbia, Insurance Corporation of British Columbia.
Joseph Ferreira Jr. and Eric Minike (2010), A Risk Assessment of Pay-As-You-Drive Auto Insurance, Department of Urban Studies and Planning, Massachusetts Institute of Technology.
Joseph Ferreira Jr. and Eric Minikel (2012), “Measuring Per Mile Risk for Pay-As-You-Drive Automobile Insurance,” Transportation Research Record 2297, TRB.
David C. Grabowski and Michael A. Morrisey (2004), “Gasoline Prices and Motor Vehicle Fatalities,” Journal of Policy Analysis and Management, Vol. 23, No. 3, pp. 575–593.
David C. Grabowski and Michael A. Morrisey (2006), Do Higher Gasoline Taxes Save Lives?” Economics Letters, Vol. 90, pp. 51–55.
Allen Greenberg (2013), “Pay-As-You-Drive-And-You-Save Insurance: Potential Benefits and Issues,” CIRP Newsletter, Center for Insurance Policy and Research.
Allen Greenberg and Jay Evans (2017), Comparing Greenhouse Gas Reductions and Legal Implementation Possibilities for Pay-to-Save Transportation Price-shifting Strategies and EPA’s Clean Power Plan, Victoria Transport Policy Institute.
Perry Kendall (2016), Where the Rubber Meets the Road: Reducing the Impact of Motor Vehicle Crashes on Health and Well-being in BC, Provincial Health Officer’s Annual Report, BC Ministry of Health; PAYD is mentioned on page 62.
Todd Litman (1997), “Distance-Based Vehicle Insurance as a TDM Strategy,” Transportation Quarterly, Vol. 51, No. 3, pp. 119-138
Todd Litman (2005), “Pay-As-You-Drive Pricing and Insurance Regulatory Objectives,” Journal of Insurance Regulation, Vol. 23, No. 3
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Asher Meyers (2015), Is Usage-Based Auto Insurance the Gas Tax You’ve Been Waiting for?, Streetblog.
NCTCOG (2008), Pay as You Drive (PAYD) Insurance Pilot Program: Phase 2 Final Project Report, Progressive County Mutual Insurance Company and the North Central Texas Council of Governments.
Wikipedia (2017), “Usage-Based Insurance.”
Current PAYD Policies
Several insurance companies offer versions of PAYD pricing. Below are examples.
The Canadian Automobile Association’s MyPace policies offer substantial (20-50%) savings for vehicles driven less than 10,000 annual kilometers in Ontario. Vehicle use is measured using a small in-vehicle device that reports odometer readings through a smartphone. Motorists are billed automatically for each 1,000 kilometers driven.
Coverbox is an Internet-based brokerage firm that uses in-vehicle instruments to calculate insurance and prevent theft. Policy mileage rates vary depending on how far and when a vehicle is driven. Motorists pay premiums based on their projected future driving patterns. At the end of the policy term the rates are adjusted to reflect actual driving during that period; motorists receive a rebate if their actual mileage is less than projected or pay for any additional mileage charge needed. Several insurance companies including Co-operative, Allianz and Equity Red Star offer Coverbox PAYD policies.
Real Insurance has offered Pay-As-You-Drive pricing in Australia since 2008. Motorists report their odometer reading at the beginning of the policy term and purchase a certain number of kilometers. Odometer readings are verified if there is a claim, giving motorists an incentive to be accurate (false readings void coverage). Any unused kilometers are either refunded if motorists cancel or don’t renew (upon verification of vehicle odometers if requested by the company) or carried over to the next policy. If kilometers exceed prepayment the policy only provides basic coverage (liability, fire and theft). Policy holders can easily purchase additional kilometers. This program was awarded Australia’s Cheapest Car Insurance award by Money Magazine.
Progressive Insurance’s Snapshot policies provide discounts based on based on how much, when and how a vehicle is driven. Cars that are driven less, at less risky times, and in less risky ways can receive large discounts. Vehicle travel is tracked using a device that is plugged into their vehicle’s on-board diagnostic port.
Polis Direct, a major Dutch insurance company, has offered their “Kilometre Policy” since 2004. Per-kilometer premiums are calculated by dividing current premiums by the current policy’s maximum annual kilometers, which is typically 20,000, so a motorist who currently pays €500 for up to 20,000 kilometers would pay €0.025. At the end of the policy term the motorist receives a rebate of up to 50% of their premium for lower mileage, or their premiums can increase up to 50% if they drive more than the current maximum. Mileage is calculated using odometer readings collected during annual vehicle inspections, called the “national car card,” and recorded in the national vehicle registration database.
Nedbank, a major South African insurer, offers Pay Per K vehicle insurance which bases premiums on monthly mileage. It monitors month vehicle travel using a NedFleet card that is linked to the vehicle’s comprehensive motor insurance. Each time the vehicle is refueled an odometer reading is recorded and used to calculate a monthly insurance bill. Monthly premiums fluctuate depending on the distance traveled in the preceding month, and are debited monthly in arrears.