New York Interested in Pay-As-You-Drive Auto Insurance

Aerial shot of new york skyscrapersAs part of an ongoing effort to reduce traffic congestion and the negative effects brought by that congestion, the New York City Department of Transportation has formally requested information on the state of pay-as-you-drive auto insurance programs across the nation and on ways that the city could help implement such programs statewide.

The department issued last week a Request for Expressions of Interest (RFEI) outlining some of the types of information that the department is interested in, such as whether there are barriers to implementing pay-as-you-drive programs in the state and whether programs already in place have effectively cut total miles driven.

Insurers already use a driver’s estimate of how many miles he or she will drive in a year as part of their rating formula. This factor is used to assess risk and determine premiums because statistics show that drivers who put in fewer miles behind the wheel tend to file fewer claims.

Data from Progressive show that, in 2005, motorists who drove 5,000 miles in a year had a little less than half the number of bodily injury claims per year as those who drove 30,000 miles. The same was true for property damage claims. Because of this, if two drivers have the same driver profile but differ on the number of miles driven, the motorist who puts in the smaller amount of miles is likely to get the cheaper insurance rates.

But, as it is now in the state of New York and many other states, insurers are able to rely only on self-reported data. This means policyholders currently have little insurance-related incentives to keep their total mileage at or below their estimate of how many miles they will drive during a policy period.

Pay-as-you-drive is intended to change that.

The logic behind pay-as-you-drive is that it establishes a legitimate incentive for motorists to drive less, since their annual miles driven will be based on their actual mileage rather than just an estimate.

A 2008 report from the Brookings Institution estimated that if all New York drivers switched to pay-as-you-drive insurance, it could cut total miles driven by more than 11 percent, although the authors of the report were considering a model that differs somewhat from pay-as-you-drive programs already in place around the country.

Whether pay-as-you-drive will be an option for New Yorkers will likely take quite a while to be determined. The RFEI is only the beginning of a long regulatory process.

California’s program, which paved the way for the first pay-as-you-drive policies to be introduced to the state earlier this month, took more than two years to take shape.

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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