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TechnoratiPay-As-You-Drive Insurance Comes to Brookings
Many of the ways to reduce greenhouse gas emissions will require major changes in behavior and/or impose serious costs. However, there is one mechanism that could lead to substantial reductions in emission with no cost: pay-as-you-drive auto insurance.
The basic point is simple. With current policies, most people will pay the same amount for their insurance whether they drive 500 miles or 50,000 miles. However, their risk of being in an accident is clearly greater the more miles they drive. If we can have insurance prices reflect the increased risk, it would mean both better insurance pricing and giving people a substantial disincentive to drive.
The impact would be large. The average cost of insurance per mile driven is close to 8 cents. This means that if insurance were paid on a per mile basis, for a car that gets 20 miles to a gallon, pay-as-you-drive insurance would provide the same disincentive to drive as a $1.60 a gallon gas tax. This can easily lead to reductions in gas consumption and greenhouse gas emissions from the auto sector of 10 percent or more.
The great part is that it doesn't even raise driving costs on average, it just makes a fixed cost - the annual insurance premium - into a per mile cost. Since people will now presumably drive less and therefore have fewer accidents, they should actually end up paying less on average for insurance.
I first wrote about this a decade ago with my then colleague at the Economic Policy Institute, Jim Barrett. Others had written about pay as you drive even earlier, such as Patrick Butler with the National Organization for Women, Daniel Khazzoom at San Jose State University, Todd Littman at the Victoria Transport Institute and Aaron Edlin, now at Berkeley. The reason for mentioning pay-as-you-drive insurance now is being discussed in the mainstream of the economics profession. Two researchers affiliated with the Brookings Institution recently wrote a piece touting the merits of pay-as-you-drive insurance.
This is great news. It means Congressional staffers and potential White House political operatives can now take the idea seriously. Environmental groups, who are more fearful of new ideas than global warming, may also be persuaded to consider it as a policy option. Now that a pillar of intellectual establishment like Brookings has certified the respectability of pay-as-you-drive insurance, it means it is at last a viable political option.
It's great to see the Brookings crew can occasionally pick up a new idea. Of course, pay as you drive is very safe, as new ideas go, since it doesn't threaten any powerful interest groups. Insurance companies can make just as much money selling pay-as-you-drive insurance as selling their current polices. The oil companies may be unhappy, but they can no more prevent pay-as-you-drive insurance than they can stop people from driving more fuel-efficient cars.
It would be interesting to see if the Brookings gang could ever be persuaded to examine some policy proposals that actually did ruffle some powerful feathers. For example, this group of hard-core "free traders" has never been interested in freer trade in the area in which the United States stands to benefit the most, health care. If our trade policies made it easier for foreign doctors to come to the United States, or US citizens to take advantage of high-quality, low-cost care abroad, the potential gains would be enormous. Of course, free trade in medical care would hurt the insurance industry and highly paid medical specialists; that's a lot more difficult than going after textile and autoworkers and the other losers from recent trade agreements.
Speaking of protectionism, how about considering more efficient alternatives to patent-financing of prescription drug research? Without government-imposed patent protection, we would pay less than $50 billion a year for drugs that now cost us $250 billion a year. If direct funding for research sounds too radical, how about just paying for the clinical trials where the worst industry abuses occur? But this proposal would anger the pharmaceutical industry.
In a year in which the big Wall Street banks have been driven to the edge of bankruptcy or beyond, by executives who have pocketed tens of millions of dollars in compensation, one would think economists might be concerned about the obvious agency problem in the system. Perhaps, they would try to rein in a sector of the economy that is clearly out of control, imposing a small financial transactions tax that could raise more than a trillion dollars over the next decade. This one would upset the financial industry, which happens to be a big source of money for the Brookings crew.
No one expects a pillar of the intellectual establishment like Brookings to be a major source of cutting-edge ideas. It is encouraging that they can occasionally pick up an idea that has been developed on the fringe, like pay-as-you-drive insurance. It's too bad the power of major industry lobbies makes this such a rare occurrence.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer" (www.conservativenannystate.org). He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.
32 Comments so far
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smith
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Great Auto Insurance-
When I got my first car (in Virginia 1966) they used to tax vehicles by weight. This makes sense since a heavier vehicle means more wear on the road. There was no CAFE standard since gas was around 30 cents a gallon and the concept of 'peak oil' unrealized except by a very few in the population.
After CAFE standards were introduced the auto companies conspired against the people of this country by adding extra weight to cars to place them in the truck category rather than cars which demanded higher MPG. Sometimes it was up to 300 pounds of extra dead weight just so the car makers could 'game/cheat' the regulations. (Note: it is estimated each hundred pounds of extra weight lowers gas mileage one mile per gallon...so get that junk out of your trunk). Not only was overall fleet (cars & trucks) mileage reduced, but think of the resources wasted to manufacture hundreds of pounds of basically ballast to put in these cars that aren't & never should be considered trucks (the PT Cruiser comes to mind).
Efforts toward greater efficiency were further perverted by Republicans passing up to a $100,000 tax credit to purchasers of Hummers...sheer lunacy! I would say what were these idiots thinking, but it is patently obvious they were not (except about oil companies & auto makers' profits).
Now the pendulum needs to swing the other way. It is estimated it takes about 16.8 years to completely change over all the vehicles in this country to newer models. It's also obvious we need to get as many of these oversized overweight gas guzzling SUV's off the road as soon as possible. Additionally, and contrary to advertising propaganda, they are NOT safer, in fact you stand more chance of a lethal accident in one rather than in a smaller vehicle.
One means of removing these 'hogs' from the road is by imposing penalties based on weight AND gas consumption. Tax credits & incentives should also be extended now to vehicles powered by means other than gasoline, AND those well ahead of what should be a continually increasing CAFE standard for MPG.
I pay $1700/year for an economy car, no accidents, no job to drive to, no public transit. Seems to me this isn't a tax on the poor so much as it is the ones that are at higher risk of crashing.
Just another scam to make more off insurance, and keep the poor and middle class of the road, getting to work and taking vacations.
I pay $450 a year now. Can you tell me how much I will pay if I drive 30,000 miles a yr? of course not, but you'll soon find out after they change it all and require yearly reporting.
Also, most accidents happen close to home....
100 5 mile trips is way more dangerous than 1 trip of 500 miles.
How about pay at the pump? What if premiums were built into the taxes we already pay? The more you drive, the more gas you buy, the more insurance you have . . .
"Pay per mile" is obviously unworkable. What WOULD work, easily, fairly and efficiently, is a gas tax funded no-fault insurance. Those who drive less and/or with more fuel-efficient vehicles pay less. No way to dodge paying.
This was proposed in the California legislature years ago but was quickly totaled by the insurance industry.
Talk about micromanagement, why not charge people for breathing. A surcharge for any mobility not contracted by the insurance company, video surveilance, or basically any one off thier leash.
USAn August 13th, 2008 12:22 pm
Tacky!
Not all poor folks live in your lovely urban area with mass transit.
Insurance as of now is paid for by spreading the risk and paying out less thasn you take in. No insurance company is going to be interested in selling you insurance under those circumstances. I wouldn't care to defend insurance companies but no business could function under these parameters. Nor do I consider this method of lowering greenhouse gases a good idea. I would argue its counterproductive.
Ergo....government run insurance program. Not cost effective.
Most working class and especially the working poor rely heavily on their cars if they don'tb happen to live on a bus or train route, which most don't.
I would say you were the one biting at the bait here. Its about as dumb an idea to decrease carbon emmissions as I've heard. This is strictly an academic exercise by people that do not live in reality.
Boy oh boy, have the pro-privatization, free-market-fundamentalistm of the neoliberals taken hold here at CD. You've bought their phoney gospel hook, line and sinker!
Is it at all possible that just because big government runs an imperilaist war machine and kisses corporate ass does NOT mean it is also bad when it is running socially useful programs, benefits, environmental, health and safety regulations and building vital infrastructure? What do you propose in place of, say the EPA, OSHA, NLRB, SEC, DOT, etc, etc except a democratically rum governmental entity of some kind?
Aren't you throwing the baby out with the bathwater?
And, I would take issue with the assertation that poor poeple rely disproportionately on cars. It certainly isn't the case where I live. The cheapest houses are close-in too, where is good public transit. All we need is for more employers to get out of these suburban "industrial parks" and "office parks" and move to a LRT or bus route. Once again, only government is in a position to make this happen.
An idea that sounds good but is impractical unless you want to put an undue burden on the poor.
Its economically impractical unless run by the government and thats a no-no.
The reservations that most posters seem to have about the PAYD concept are addressed in the original report.
www.brookings.edu/articles/2008/spring_car_insurance_bordoff.aspx
And it does appear to be a win-win proposal: reducing congestion and unnecessary trips; rewarding those who drive less and penalizing those who drive more. It helps to reduce the indirect, perverse subsidy for driving an automobile, estimated to amount to somewhere between $5 and $15 per gallon of gas.
(See Perverse Subsidies: How Tax Dollars Can Undercut the Environment and the Economy. by Norman Myers and Jennifer Kent)
PaulMagillSmith August 13th, 2008 6:32 am said:
"If you really want to keep people in Gaza, Darfur, and numerous other places on the planet from starving, I would suggest you direct your energy toward a 'cause' like…GETTING RID OF CORPORATE PERSONHOOD."
Good strategy. But because corporations rule, it is harder to do than to simply incorporate We the People and make other corporations compete for our public resources and pay us dividends in cash, clean environment, univ. healthcare and education, etc.
People always overestimate the effect of intellectual and moral change and underestimate the effect of technical change. The whole transportation problem is about to be transformed by new techniques for electricity storage and generation (salt towers, and solar panels that work as windows, google it or read the bbc and other sites). When electricity is clean and cheap, oil will become an industrial material instead of a fuel. The oil companies know this, whatever crap they say in print ads and public policy statements, and that is why prices are so high right now - they are cashing in while they still can.
Cars are not going away. I strongly support expanding public transportation, particularly re-funding trains and trolleys. But cars are here to stay (which of course means that oil will continue to be used as a chemical for making roads and many other products associated with cars, just in much smaller amounts). It doesn't matter how many people lobby for or against change in this area - it's coming. The car companies are already defecting from their longstanding collusion with big oil. The science is accelerating, new breakthroughs every year. This is all extremely positive. There are many many problems with our lifestyle and modes of production (and of course global warming may or may not change everything... it's happening, but no one knows exactly what will come of it). But we ought to be capable of some hope and joy in the simple fact that solutions ARE POSSIBLE. As Andre Benjamin of Outkast has said, it's not keeping it real to be miserable all the time.
I'm a consistent critic of the way science has been corrupted and coopted by the profit motive (one example is the Harvard psychiatrist who took almost 2 million dollars from Big Pharma to write articles in favor of prescribing psychotropics to children; there are obviously broader and more insidious ways in which this has happened). I happen to believe taht we have allowed ourselves to rely too much on technical solutions to personal and moral problems. BUT I can recognize a big giant bright light at the end of the tunnel when I see it, and the recent momentum in innovations in electricity generation and storage is that bright light for all of us.
This concept is all right, but we already have a mechanism for doing this, which has the side benefit of helping to fix our crumbling infrastructure. The better policy is hiking the gas tax and making other kinds of vehicular taxes (plate fees, registration tax, etc.) tied to fuel economy rather than the flat fees that are currently prevalent. That way, those who drive inefficient vehicles, which tend to be larger and tear up the roads more, will pay more for the privilege. There should, of course, be a rebate for those with lower incomes.
RE: miftin August 13th, 2008 1:07 am
"People are dying of starvation in Gaza. Why is nobody on Common Dreams talking about it?"
Even if somewhat innappropriate for this thread your comment/question has merit, and is somehow relevant. The logical answer is, "Isn't it more productive to attack the cause of a disease rather than just treat the symptoms?" Gaza is just a symptom of the pervasive pernicious deadly disease of corporatism gone errant.
If you really want to keep people in Gaza, Darfur, and numerous other places on the planet from starving, I would suggest you direct your energy toward a 'cause' like...GETTING RID OF CORPORATE PERSONHOOD.
If companies like Lays can track where every bag of chips is in their supply chain with bar codes & GPS, Low-Jack can track stolen cars, criminals under house arrest can be detected stepping out of the perimeter, or movement of wild animals determined on land or sea worldwide, then doesn't it appear the technology is extant to make pay-as-you drive viable immediately?
The real battle isn't about the how, but with the who: who are the corporations that will lose income, and how do we force them into a system better for the consumer, the environment, and our national security?
There's also a 'which' involved, as well as a 'how'; which Congress critters do we need to lobby (bribe) to make this doable system come on line, and 'how' do the people assure the insurance companies don't out-bid us?
Thanks, Galifray. Man, Dean Baker has had some band aid solutions lately.
Why are we punishing people for a highway system implemented by the Eisenhower administration to lift up the auto industry? Mass transit continues to be neglected as a viable option because middle class people don't want to sit next to poor people. The problem being factories are often surrounded by other factories or isolated business districts that transit avoids going to most the time. Making owning a car mandatory.
Why can't we just socialize car insurance kind of like the post above says? It's already mandated by states to own, punishable by hefty fines--so the punishment part is down. When a cop is giving you a no insurance ticket, he is fulfilling his role as a private functionary for companies. Out of principle, I refused to have car insurance and was fined so many times on routine stops that I was priced out of driving a car. It was crazy. But I learned how to manage the transit life.
Baker's last sentence negates his whole premise - that is, insurance companies would oppose the idea.
Unfortunately, public policy takes a back seat to corporate priorities in the United States. Moreover, insurance companies represent monolithic corporate interests that have never really been challenged in this country.
In California, insurance is regulated by a state commissioner, but we have to buy it. Oddly, it is the one product we are legally compelled to buy. Despite the regulation, premiums are high, and the insurance companies also keep deductables high so that the insured pays most of the costs anyway.
It is literally highway robbery.
The solution to this mess is to have state-managed insurance pools paid for by taxes. Take the insurance companies, which just operate to maximize profits, out of the loop. With a publicly funded system, Baker's idea could be tried. It can't be tried when corporations call the shots.
People are dying of starvation in Gaza. Why is nobody on Common Dreams talking about it?
What are you people talking about? swipe of your driver's license at the pump, ban all new SUV's and triple the friggin taxes on existing ones, The insurance fee would be collected at the pump just as taxes are. You realize that the government will have to do all this, right? Now how much do you trust your government, huh?
To use a famous quote: "The worst idea since Greedo shooting first."
Another problem with this "idea" is the unfairness of it earnings wise.
Say a minimum wage earning person paying the 8¢ per mile drives her 1994 Toyota twenty miles per day to and from work, for example, costing her an extra $1.60 (or about $416 a year). Mr. CEO has a $150,000 Limousine he drives to and from work (O.K. his chauffeur does) the same twenty miles, yet he is also paying $1.60 a day ($416 a year). Same rate, very different coverage. She struggles, to him it's pocket change. Her car gets totaled, the insurance company is out a few thousand or so, Mr. CEO has his Limo totaled and gets many tens of thousands.
Not fair. This idea, like most such pay-as-you-go / libertarian ideas, ends up punishing the poor.
Great idea.
It's a pretty good proposal. It's probably impossible to implement back in the old days. But with new technology, all it takes is a swipe of your driver's license at the pump. Your info and insurance rate would be inputed into the pump, and your per gallon insurance cost will be added to your gasoline purchase.
This will take care of the uninsured motorists problem also.
some people seem to misunderstand this concept. The insurance fee would be collected at the pump just as taxes are. some entity would distribute it to the proper party, just as they now distribute the appropriate amount to federal or state taxes, etc. A question I do have is what about collision/comprehensive. this program would work for liability/death/medical but should not pay for repairs to vehicles because they vary so in value. Vehicles should be covered by private insurance.
I first heard this proposal in the 80s in a book by J. W. Smith "World's Wasted Wealth," and I believe it was propounded originally by Andrew Tobias.
riddimboy,
On your first post, no doubt about it. Public transportation is out of reach for most of America and even where it's available, it has been piss poor for the last 3 decades to say the least. I've posted better solutions but because most people would much rather continue the phoney "war on drugs", keep public transportation PRIVATIZED, and keep shitting at people who conserve, reuse, and recycle instead of reward them, I say LET'S JUST SLOP UP ALL THE FOSSIL FUELS AND NUCLEAR AND GET IT THE FUCK OVER WITH IT ! Maybe then we can rebuild a truly more sustainable society that's great both economically and environmentally speaking. And while at it, let's work towards DEMOLISHING the two-party corporate duopoly and keep fighting for true progressive/liberal representation and even take back the words "moderate" and "conservative".
The more I think about this, the stupider it seems. I'm all for the principal, but implementation could be problematic. How do insurance companies know your actual mileage, by declaration? Are they going to send out people to check your odometer? (an added layer of bureaucracy and increased administration costs) What about the scofflaws that don't have insurance anyway, even where required by law? Who will force them to get insurance and at what rate? Who enforces it all? Too many unanswered questions for me.
And does anybody really think that the insurance companies would willingly cut premiums for anyone? Let's have some citations for that please, unless it's been price controls by state agencies overseeing insuranace companies.
Sounds like more free market BS to me, I can just hear the rebuttal from the Cato Institute--well of course this will increase competition as insurance companies race to lower rates to entice more drivers!
Just like the oil companies are racing so hard to lower the cost of gasoline at the pump as the price of a barrel of oil falls 20% off its recent all-time high. Funny, prices haven't fallen 20% yet. And watch how fast they're building new refineries and drilling on all those untouched leases just so they can bring the cost down!
The best immediate solution is to ban all new SUV's and triple the friggin taxes on existing ones. Essentially make it unpleasant enough so their owners cant drive them anymore. Take the behemoths off the road. Thats a good first step.
This only works if you collect it at the pump. Figure cost per mile, times some standard fuel economy you should be getting (say 25 MPG), and include that figure in the price of the gasoline.
Want to save money? Buy a Prius, your insurance costs plummet. Want that H2 to drive to work? Pay through the nose.
Sounds like a heck of an idea to me.
This is kind of a ridiculous post as a discount for miles driven is already implemented by most insurance companies. If you know that you will drive less than a fixed number of miles(depending on the insurance company), you get a discount on your premium. Once that time is up and the insurance company checks the odometer, if you are over, they will just charge you the difference of full cost. The poster takes the process a little further, but this is no new or unused idea.
And what of people trying to get out of paying-by-the-mile by fiddling with their odometers?
It sounds like a great plan but the people who will be most affected by it in large urban-suburban metropolis' like the SF Bay Area are the ones who can least afford to pay-as-they-go. Too often here, people end up living waaay out in the suburbs as its more affordable for families. Thanks to the lack of viable public transit they have no choice but to drive long distances. While vertical growth, public transit, urban renewal and all these 'green' options are definitely desirable what happens to a majority of people who cannot afford the 'green' options ?
great idea, make pay-as-you-drive mandatory. then we can track the few who still don't have cell phones.