Pay-As-You-Drive Car Insurance

Jason Bordoff, The Brookings Institution

Abstract

If you’re like most Americans, you eat too much at all-you-can-eat buffets. With auto insurance, it’s no different. 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. It’s also inequitable, as low-mileage drivers, particularly low-income people and women, subsidize high-mileage drivers. A better approach is simple and obvious: pay-as-you-drive (PAYD) auto insurance.