Selling car insurance by the mile

The idea of replacing the gas tax with a tax by miles driven is being tested so what about car insurance by the mile? One company has introduced the concept in Portland:

You wouldn’t buy an unlimited fare card if you only took a few transit rides per month, but when it comes to car insurance that’s pretty much how things work. Drivers who are similar in age, gender, and residence pay about the same premium even if some drive 5,000 miles a year and others 50,000 miles. The problem is not only that low-mileage drivers end up subsidizing high-mileage ones — it’s that everyone has an incentive to drive as much as they can.

One idea to undercut this system is pay-per-mile car insurance. Earlier this month at The Atlantic, Matthew O’Brien explained (via this 2008 Brookings report; PDF) just how much America stands to save with such a service. Driving would fall 8 percent nationally; oil usage and carbon emissions would drop 2 and 4 percent, respectively; fewer traffic and accidents could be worth upwards of $60 billion a year.

Since city residents have transportation alternatives at their disposal, they’re likely to benefit from mileage-based systems more than most. That’s the basic idea behind MetroMile, a new per-mile car insurance company that launched earlier this month in Portland, Oregon. While conventional car insurance companies dabble in mileage programs, MetroMile was created explicitly with that low-car lifestyle urban driver in mind — even down to the name…

MetroMile users receive a device called a Metronome (sadly, the “N” isn’t capitalized) that plugs into the car and tracks mileage in real-time. Drivers pay a monthly base rate that’s around $20-30, says Pretre, then pay 2 to 6 additional cents per mile. He says anyone driving fewer than 10,000 miles a year should start to save, and once you get down to 8,000 miles, the savings approach 20 to 25 percent over major car insurers…

While it makes sense to introduce this in Portland or a number of other dense cities where mass transit usage or alternatives to driving are common, would this work as well in the suburbs? Would the costs of paying car insurance be enough to prompt people to change their living patterns? Maybe it depends on how much cheaper that car insurance could be or perhaps the quest for the cheaper house that provides more bang for the buck would still win out.

The 2008 Brookings report cited above titled “Pay-As-You-Drive Auto Insurance: A Simple Way to Reduce Driving-Related Harms and Increase Equity” makes an interesting point: increased driving is related to increased income (see page 10 and 40). In other words, Americans who have the money to do so drive more. This helps explain the reluctance of higher-income Americans to use buses.