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Pay As You Drive Auto Insurance: The Seen and Unseen

Posted in Cars, Newsworthy, Politics, Traffic by Vito Rispo | August 5th, 2008 | Leave a Reply |

I’m a huge fan of free market solutions to social problems. I’m actually what you’d call an anarcho-capitalist, or a market anarchist; which is basically just someone who likes freedom and dislikes monopolies. And government is the biggest and most dangerous monopoly of them all. So anytime there’s a simple economic solution to a bigger problem that government may want to get involved in, I’m all for it.

Check out this interesting article about “pay as you drive” car insurance by Jason Bordoff in a recent of Democracy: A Journal of Ideas:

Drivers who are similar in all respects—age, gender, driving record—pay roughly the same premiums whether they drive 5,000 or 50,000 miles per year, even though the likelihood of a collision increases with each mile. This “all-you-can-drive” pricing scheme imposes significant costs on society: more traffic accidents, congestion, air pollution, greenhouse gas emissions, and dependence on oil.

…the effect of PAYD on miles traveled and gasoline consumption would be significant: a 6.5 percent reduction under conservative estimates, and others suggest the reduction could be as high as 10 percent. To put that in perspective, it would take an 81-cent-per-gallon increase in the gas tax to achieve a 6.5 percent reduction in miles driven.

The social benefits of PAYD would be approximately $30 billion per year, mostly from reduced accidents and congestion, as well as reduced local pollution and carbon emissions plus increased oil security. Premiums would also decline for around two-thirds of drivers, since a minority of high-mileage drivers are responsible for the majority of miles driven.

The rest is here (you have to register, but it’s free and easy).

It sounds easy enough, the only thing I’d be worried about would be my travel data in the hands of an insurance company, who may decide to sell it to advertisers or even share it with the government.

What do you think? Good idea? Why don’t companies do this already?

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