Mass. Clean Energy and Climate Plan Includes Auto Insurance Proposal

Secretary of Energy and Environmental Affairs Ian Bowles, whose department produced the report advocating PAYD Massachusetts auto insurance. (Photo Courtesy of Massachusetts Executive Office of Energy and Environmental Affairs)

Massachusetts state officials have included in their Clean Energy and Climate Plan for 2020 a proposal for adoption of a statewide pay-as-you-drive car insurance pilot program.

The report, released yesterday by the Department of Energy and Environmental Affairs, suggests that switching to a pay-as-you-drive system — also known as PAYD — could cause a significant decrease in the number of miles driven by residents, which would help curb the emission of greenhouse gases.

Voluntary PAYD programs have already been made available to policyholders in different parts of the country.

In these programs, motorists pay regular premiums based on vehicle and driver factors — often including an estimation of how many miles will be driven in a year. At different points during the policy period, the insurer obtains data showing the actual numbers of miles driven, and will generally give either a discount at renewal if the mileage has been overestimated or a slight increase in rates if the mileage has been underestimated.

The basic logic behind this is that the more time a motorist spends on the road, the more opportunities he or she has to get into an accident and file a claim. So insurance providers give discounts to those who cut their risk by driving less. Proponents of PAYD programs say these discounts provide incentives for policyholders to cut down on their mileage.

The state’s proposed pilot program, though, differs slightly from most PAYD programs currently available in other parts of the country.

In the ideal program outlined in the Clean Energy and Climate Plan, Massachusetts car insurance companies would bill policyholders monthly based on the miles traveled during that period rather than through annual mileage verifications.

The authors of the report also advocate a mandatory, statewide PAYD system — which would be the first in the nation — in order to maximize use and traffic reduction.

If a mandatory, charge-per-mile system is adopted, the reduction in miles traveled by motorists could reach 9.5 percent, the authors assert. If a voluntary system is put in place, the reduction could be approximately 2 percent.

According to the Massachusetts Division of Insurance, car coverage providers in the state are currently allowed to give discounts based on the amount of miles that a policyholder drives as long as they demonstrate to the department that it is a useful predictor of risk. But so far no insurer in the state has put this capability to use.

Massachusetts is certainly not the first state to consider allowing insurers to use a PAYD system as a means of reducing carbon emissions.

California regulators approved the state’s first two PAYD programs in early December, championing it as a form of “green” auto insurance. And just last week the New York City Department of Transportation released  a request for expression of interest in instituting PAYD programs in the state in order to curb congestion and pollution.

About Ben Zitney
Benjamin Zitney has been covering the auto insurance industry for the past 2.5 years. Before coming to Online Auto Insurance News, he produced an extensive company history of the 30-year-old California Joint Powers Insurance Authority and worked at the Cal State Long Beach Daily Forty-Niner as a reporter, copy editor and news editor.

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