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December 20, 2005

Japan Gets PAYD

Here's a little something I'll be keeping an eye on:  Japanese insurance company Aioi has started to offer pay-by-the-mile car insurance. (See page 2 of this pdf.)  This is an especially nifty development, since it means that Aioi will be working out some kinks in the technology (the company will verify mileage with a device installed in policyholders' cars) which might help PAYD make the leap across the Pacific.

As we've said many times, pay-as-you-drive insurance (or PAYD) offers huge advanatages. Overall, the system is fairer than the all-you-can-drive insurance that most of us buy:  people who don't drive much tend to incur less crash risk, and they wind up subsidizing people who do a lot of driving.  Even the policies that give a little price break for low-mileage drivers still make the people who drive the least subsidize everyone else.  And not only is PAYD fairer to low-mileage drivers, it also creates an automatic disincentive for extra driving:  just as an all-you-can-eat buffet makes it more likely that you'll gorge yourself, all-you-can-drive insurance makes it more likely that you'll drive more than your really need.

We've long been hoping that some auto insurer will offer PAYD in our part of the world.  In 2003, Oregon even passed tax incentives to sweeten the pot. But so far, no company has taken the bait.  And that's pretty understandable -- PAYD suffers from the "first mover" problem, in that the first company to offer PAYD not only has to create a new market for this kind of insurance, it also has to work out all of the technical kinks in tracking and verifying policyholders' mileage. 

But if US insurers can build on Aioi's technology, much of the technological part of the first mover problem gets solved.  And if Aioi can figure out how to market PAYD in Japan, it just might convince US insurers that there might be the same kind of business opportunity on this side of the Pacific.  Neat!

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» Pay-Per-Mile Car Insurance: It's Coming. from WorldChanging: Another World Is Here
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Comments

I just cracked the ToC on the Northwest Environment Watch book, This Place on Earth 2001, and came across a reference to the PAYD systems, and it struck me that using GPS for this kind of tracking is very, very weird. Very big-brother-y. My objection is to the security of the systems, and accidental data bubbles, where my detailed driving record is released to anyone who wants it.

People in NY already have this problem. FastPass will tell your insurance agency that you're driving up to Boston on a regular basis, and your rates go skyrocketing.

Posted by: Benkay | Dec 20, 2005 2:26:51 PM

Hi Benkay-
FYI- while GPS-based systems seem to offer a far wider variety of benefits (e.g., easy cross-over to a pay-by-the-mile road pricing system), privacy concerns are easily overcome by a system that simply checks odometer data (during routine emissions testing is one possibility).

As those who read up on these things know, insurance companies have offered PAYD in Israel (where the largest insurance company has 15% participation), the Netherlands, and South Africa. Add representation from another continent (thanks to Aioi) and we're on to the Americas for that elusive (and approximate) 10% reduction in vehicle miles traveled per insured PAYD vehicle....

Also, wouldn't it make sense (from fairness and insurance claims/risk exposure points of view) that those who do drive up to Boston from NY on a regular basis should pay a higher rate for their insurance than those who don't?

Posted by: John M | Dec 22, 2005 3:35:49 PM

Actually, the UK has also had this for a year or more--Norwich Union offers it.
http://www.norwichunion.com/pay-as-you-drive/

In fact, PAYD is already in the US. GMAC and OnStar partnered to create such a system in january 2004, and it measures mileage via your odometer, not through GPS, which is better for privacy concerns. It's only available in a few states, though.
GM press release:
http://www.gm.com/cgi-bin/pr_display.pl?5205
and an EDF article on it:
http://www.environmentaldefense.org/article.cfm?contentid=2205

Posted by: Jeremy Faludi | Dec 22, 2005 8:33:44 PM