Pay As You Drive Auto Insurance and Monitoring Driving Habits

Does a pay as you drive auto insurance model sound like a good idea? Imagine if you’re a good driver and you’re not stuck subsidizing poor drivers because they have a bad driving record? That would be fair right?

Well, yes and no. While the PAYD model seems like a win-win, it’s actually not. Since you can’t just throw risk assessment out the window, each individual driver needs to have premiums set based on many factors including how they’ve driven in the past, age, sex, location, vehicle, credit score, demographic data and other metrics. If you use all of these factors AND allow drivers to pay less or more based on their how much they drive, it’s likely that low income high-mileage drivers with poor to fair credit and insurance scores would forego car insurance altogether because honestly it would just be too expensive.

It’s a possibility that in the near future some states will legislate some features of a model like Pay As You Drive, but there will need to be a few things in place before an insurance company would realistically write a policy based on documented miles. For one, an onboard computer that can accurately track mileage. Thanks to the ease of rolling back an odometer an insurance company would need more than just your stated number of miles in a policy period (or a previous policy period) to assess premiums – they’d want the most accurate data possible and only an onboard computer that could track mileage would be sufficient – or at the very least reputably documented odometer readings like you get at the DMV on a regular basis.

If this new technology is found to be too invasive by the general driving public, then if desired, the state could mandate all registered vehicles have regular odometer checks to insure accuracy, but all in all I believe this is a model that insurance companies would not jump on board with. With the current technology in place it’s too easy to scam the system, and onboard computers that track and deliver driving information may be deemed as a privacy invasion, and to top it all off, it would decrease revenue and ultimately the profit of an insurance company if a large percentage of good drivers paid less than they do now, and bad drivers switched insurance companies or carried no insurance at all.

Pay As You Drive in my opinion is a novel idea at best. A few insurance companies in select states are offering discounted rates to drivers that allow them to place an onboard computer in their car, but this is limited to certain states and it’s more about assessing driving habits than it is how many miles you drive.

In the future I would expect to see this new onboard computer technology adapted (if slowly) and more and more insurance companies in other states will allow drivers to get a discount for studying driving habits and basically being good drivers. Ultimately, this method will save good drivers the most amount of money, and poor drivers will be paying more for car insurance. This, I truly believe is the best way to accurately determine what someone should pay for car insurance – how they drive, not how much or how little they drive.