It's All About Incentives, Baby
It's no big mystery: If you have a flat rate for water, people will waste more of it than if they pay in function of how much they use. The same thing also certainly applies to cars. If people paid less insurance if they drove less, that would be an incentive to put fewer miles on their vehicles, thus using less fuel and polluting less. This would also reduce road congestion and accidents.
One company that has understood this is MileMeter from Texas. Read on for more details.From MileMeter's FAQ:
We sell per-mile car insurance through our website directly to consumers. Rather than purchase months of insurance coverage, you can purchase miles of coverage. If you drive less, you pay less. You can print your insurance cards from the website, and the entire transaction requires only 5 minutes. The policy costs are quoted in cents per mile. You may purchase between 1,000 and 6,000 miles of coverage and pay in full at the time of purchase.
A Greener Choice
I think that all auto insurance companies should offer at least the option of paying by the mile, or to sign up for some hybrid program such as, for example, a flat rate for the first X miles and then a certain number of cents per mile over that.
The more you drive, the higher your chances of being in an accident are. Insurance companies already discriminate based on age and sex to try to have more accurate risk estimates. Adding miles driven would only make that estimate more accurate, so that people who don't drive much wouldn't be subsidizing the insurance policies of those who drive 40,000 miles a year.
In fact, with a bit of technology, we could make these incentives much stronger. We know that information feedback works (if you don't know how you're doing, you won't improve). So we could have onboard computers that not only show things like MPG, but also how much you are paying for insurance so far this month based on how many miles you've driven. The goal would of course to keep that amount as low as possible (and many people would probably save money compared to today's inflexible rates).
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