Alternative Car insurance – PAYD

David Alpert of Greater Greater Washington recently linked to a NY Times article about Pay-As-You-Drive (PAYD) Car insurance. The article has a freakonomics-esque slant to it discusses the negative externalities of driving that the public bears the brunt of when the individual decides to drive more. This is a lead in to discuss the merits of PAYD insurance to society as a means of transferring costs to those whose habits warrant them.

The exercise will no longer be academic theory as a new PAYD product from Progressive is slated to be rolled out soon. Currently insurance providers offer small discounts based on self reported estimates of annual mileage. However actual mileage from your car will be transmitted directly to Progressive under their ‘MyRate’ product. Mileage then becomes fact rather than a self-reported estimate thereby enabling Progressive to trust the information and provide deeper discounts.

Pretty cool idea. I’m not bold enough to entirely give up my car but I plan to drive much less living downtown with much of what I need a short walk from my front door. Yet Geico wanted to more than double my insurance when I told their quote engine I was moving from Zipcode 22201 to 20001. Yikes. I eventually shopped around and found a reputable carrier that would ‘only’ raise my premium by 35%.

Is anyone else intrigued by PAYD as much as I am? Throughout my whole process of picking a new provider it became apparent to me that my costs were skyrocketing because I was subsidizing the people who drive a lot and/or park on the street. My car is substantially more secure in my garage rather than the streets but no provider was willing to acknowledge that fact in the form of a discount.

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  1. 1

    Madrigal Blogs says

    Agreed, this is very interesting! Like you, I’ve kept my car because I need it occasionaly enough. But I resent the the fact that insurance rates are so high for a car that spends about 98% of its time locked up–and most of the time that I’m using it, I take it out of the city.

    The current model is economically incompetent, and creates all sorts of bad incentives. PAYD seems a much better model.

    I’d love from anyone who’se used this. My current insurance contract is up next month, and this is something that I’ll seriously consider.


  2. 2

    fourthandeye says

    I’ve got too many friends outside the beltway in Virginia who live nowhere near Metro to give up my car. Zipcar would be fine for planned errands but an impromptu last minute decision to drive to Chantilly, drink beer, play airhockey and crash on a couch? Not so much… The only big negative on the PAYD model I see is the ‘big brother’ aspect of it.