Why pay-as-you-drive auto insurance would help just about everyone -- and how the province keeps missing the boat.
[Editor's Note: For your consideration, we'd like to present the 2010 edition of New Ideas for the New Year. This popular annual series highlights creative ideas for improving our lives and communities. We'll publish a new one starting today until Jan. 1.]
Imagine a policy fix that's as good for drivers as it is for the planet, that saves both lives and money, and that trims carbon emissions while correcting an injustice. Imagine this solution boosts profits for the industry it affects, and that it can be implemented gradually.
Imagine this innovation has deep roots in British Columbia -- that a leading champion of it works just minutes from the legislative buildings in Victoria -- and that the province is a particularly easy place to implement it. Imagine that this fix is already in place in more than a dozen places around the world.
Now imagine that the public corporation positioned to make this fix has been stonewalling for years. In a nutshell, that's the story of pay-as-you-drive auto insurance and the Insurance Corporation of British Columbia (ICBC): a boat missed, repeatedly.
Drive less, pay less
Car insurance in British Columbia is like an all-you-can eat buffet: once you've made the purchase, you may as well gorge. Mileage is correlated with risk; the more you drive, the more likely you'll crash. But unlike a driver's age and safety record, insurers have historically underweighted mileage in their rating formulas because it has been difficult to ascertain. Information technology and tamper-resistant odometers have changed all that, making it possible to approach the insurance actuaries' Holy Grail: matching premiums precisely to actual risk.
Actuarial accuracy is the key to insurance profits. A fairer price schedule -- one based on mileage driven (along with other existing factors such as age and crash history) -- is also the key to giving owners a new way to save money, by driving less. The result is mileage-based insurance or pay-as-you-drive (PAYD) car insurance. Insurers can check mileage by reading odometers, by installing mileage-recording transponders or even with high-tech GPS. Essentially, pay-as-you-drive makes buying car insurance like buying gasoline: drive less, buy less.
More companies getting PAYD
The race to mileage-based insurance has been on for several years, as companies strive to find cheap, reliable ways to track their customers' mileage. Commercial insurance for businesses' vehicle fleets and for truckers is now routinely mileage-based. Consumer auto insurance is moving in the same direction. In Ontario, Aviva offers a by-the-mile plan. In the Netherlands, Polis Direct does; in Japan, Aioi; in Israel, Aryeh; and in South Africa, Nedbank and Holland Insurance.
In the United States Progressive and GMAC now offer plans that weigh mileage more heavily than most insurers, though they're not full mileage-based insurance. A new company in Texas called Milemeter launched a true by-the-mile insurance plan in 2008, and in 2010, Seattle-based Uniguard will launch its own fully distance-based plan in Washington state.
ICBC refuses to play
By rights, ICBC, the province's official auto insurance monopoly, should be leading this charge. Shielded from competitors by law and chartered to serve a public purpose, ICBC could launch by-the-mile pricing without fear of losing a single customer. Instead, the company has folded its arms and refused to play.
B.C.'s absence is conspicuous, given the history.
In 1995, Sightline (then Northwest Environment Watch) commissioned research on PAYD from Victoria Transport Policy Institute's Todd Litman. Litman went on to become perhaps the world's leading proponent of the concept. He has tirelessly developed the design for PAYD insurance, researched all dimensions of its implementation, and advised governments and insurers on how to do it. (A compilation of Litman's research is here. He makes the case here that B.C. should give PAYD a chance, particularly through a low-cost odometer-reading pilot project.)
Sightline has been advancing the concept in countless ways ever since. Partly prompted by our work, in 2005, both the Vancouver City Council and the Greater Vancouver Regional District passed resolutions asking ICBC to introduce PAYD, to no avail.
Are you listening, Mr. Premier?
The stakes are enormous: pay-as-you-drive insurance could spur all types of motorists to drive less, which would reduce congestion and auto accidents. One study estimates that a universal system of per-mile auto insurance would reduce U.S. driving nationally by about nine per cent with a potential insurance savings of $8 billion a year. Litman, for his part, estimates that PAYD would reduce driving by around 10 per cent and crashes by 12 to 15 per cent.
PAYD offers huge advantages. It's fairer than ICBC's current all-you-can-drive insurance: people who drive a little currently wind up subsidizing people who drive a lot. And it creates an automatic disincentive for extra driving: just as an all-you-can-eat buffet encourages gorging, all-you-can-drive insurance makes it more likely that you'll drive more than you really need.
Will 2010 be the year when ICBC catches up with innovators across the globe and launches an insurance option that matches the province's green-economy ambitions? Perhaps the province's carbon-busting premier should put ICBC on his "to call" list.