Pay As You Drive Policies

By Author: Marcus Stalder
Total Articles: 491
Comment this article

One of the more interesting debates in our society is the question of climate change. What we can call the scientific lobby believe the evidence shows a rise in temperatures and a shift in weather patterns. So not only is the world getting warmer, there are less predictable periods of rain and drought. The scientists blame us for dumping too much pollution into the air. Most of industry and the politicians who represent them reject the idea of climate change or, if it does exist, deny that we have anything to do with it. No matter who's right, it's "good" to see the insurance industry reacting defensively, i.e. on the basis it might be real. So we see increasing premium rates for unexpected weather conditions or complete refusal to insure some part of the country against flooding, hurricanes and the like. In the driving world, we see the launch of new policies called pay as you drive (PAYD). The idea is very simple. People who drive only a few miles a year at off-peak times of the day are less likely to have an accident.

For several years, insurers have been offering discounts for people who can make a reasonably credible ...
... case that they are low-mileage drivers. Thus, our seniors and homemakers are not likely to leap into their high-powered battle wagons and drive across the country at the maximum permitted speeds. They will drive hither and thither in safe family saloons to drop children off at school or go down to the mall. The problem for insurers has been one of trust. Can you always rely on what people say about how far they drive? The answer, sadly, is no. Many have been lying in an attempt to qualify for the discounts. You can't blame people for trying.

Now technology has caught up with the insurance industry's best intentions. Many manufacturers are now installing sophisticated computer systems into their vehicles, often with transmission facilities for GPS and other purposes. Now insurers have access to the perfect Big Brother systems, they can move from vaguely worded discount offers to formal PAYD policies. If your vehicle has the technology already in place or you are prepared to instal a black box, you can have your premium rates calculated by the mile. Yes, literally! Some insurance companies are offering highly structured discounts based on verified mileages. Even better, some of the technology will monitor how you drive. If there is rapid acceleration and sharp braking, the premium rate will rise.

Car insurance is all about matching the premium rate to the qualities of the individual driver. The intention should always be to reward the safest drivers with the lowest premiums. Up to now, the problem has been knowing who the safest drivers are. Now there can be a spy in every vehicle and insurers can match the rates to the individuals. Ironically, the adoption of the PAYD package in all the major states will encourage all the drivers to save the planet. If everyone drives without sudden acceleration and braking at low average speeds on uncrowded roads, fuel economy will rise rapidly and we will avoid pumping more carbon dioxide into the air. For once, this is car insurance with green credibility.