For years — decades — pay-as-you-drive insurance (PAYD) has been the next big thing, a scheme that will painlessly reduce driving and its impacts and make car insurance more equitable. Almost everyone seems to agree it’s a good idea: Motorists would pay for insurance on an à la carte rather than all-you-can-eat plan, according to how many miles they drive. Conscientious low-mileage drivers would no longer subsidize hyper-drivers. All would gain another incentive to drive less, emit less carbon and fewer pollutants, and contribute less to congestion, road wear and collisions and fatalities. Insurance companies would gain another tool to sort out low-risk and high-risk drivers. Under the most widely promoted form of PAYD, they’d also get to compile much more information — the industry’s magic elixir — on drivers.
Call it any of its names — pay-as-you-go, usage-based, mileage-based, distance-based, per-mile, variabilized insurance — the idea makes great intuitive sense. At least 43 U.S. states offer some form of it. Israel, Japan, the United Kingdom and the Netherlands employ more robust versions. A 2008 Brookings study found that enrolling all motorists nationwide would reduce total driving by 8 percent, oil consumption by 4 percent and CO2 emissions by 2 percent. In actual trials in Minnesota, pay-per-mile drivers reduced their weekend driving by 8.1 percent, weekday off-peak driving by 3.3 percent, and weekday peak driving (which has the greatest pollution and congestion effects) by 6.6 percent. Longer use and familiarity might amplify these short-term effects.
In this region, the Victoria Transport Policy Institute and Sightline Institute have plumped for years for PAYD. About six years ago, King County announced a PAYD trial in partnership with Seattle-based Unico Insurance. It fizzled. Various legislators have pushed various bills to make Washington insurance regulation more PAYD–friendly. They ultimately failed, though one passed the Senate near-unanimously before dying on the House’s vine.
What’s going on here? How can such a popular, sensible measure keep failing to make it to market or onto the law books in Washington?
Like Clintoncare back in 1993 (remember the “Harry and Louise” TV spots?), PAYD ran afoul of an insurance industry that initially seemed to support it. And it got caught in a clash between different segments of the industry with different dogs in the fight.
Way back in 2008, one upstart startup did try to make the idea work. Dallas-based MileMeter launched an elegantly pure form of PAYD in Texas, which in 2001 had become the first state to pass legislation specifically authorizing by-the-mile insurance. Every six months, customers purchased blocks of insured miles, good for six months and priced to favor low-mileage drivers: about $90 for 2,000 miles and $326 for 6,000, according to the Dallas Morning News. At the same time, they’d send digital photos of their odometer readings. After six months, when they renewed, they’d send new odometer photos. If they drove more, they’d pay the difference; unused insured miles would roll over to the new period.
Alas, MileMeter folded last year. Its founder claimed it was “profitable on an underwriting basis,” but got squashed by larger adverse forces: the credit crunch and financial crisis, including the collapse of mega-reinsurer AIG, and the overwhelming scale. Maybe it gave customers too good a deal and got killed on payouts; $180 to drive up to 4,000 miles a year sounds incredible, even assuming rates are generally much lower in Texas than here.
Certainly, MileMeter suffered from its inability to expand into other states and build the scale it needed to compete with the big boys — thanks, at least in part, to other states’ regulations. Washington law doesn’t ban PAYD, but it throws up various barriers. MileMeter ran up against one, a “seasoning” requirement that insurers be in business for three years before they start up here. That may guard against fly-by-nights who will leave customers stranded, but it also discourages innovation and protects established companies.
In the 2011 legislative session, then-Senator Phil Rockefeller, a Kitsap County Democrat, tried to lift some other barriers to PAYD. His bill explicitly granted insurers the right to charge by the mile or other usage unit, amend existing disclosure and notification requirements that might impede them from doing this, and let them collect information on customers’ driving habits as well as mileage via onboard monitors/transmitters. That last provision was ardently sought by Progressive Insurance, which has persuaded about 1 million customers in 43 states to allow such “black boxes” in their cars.
“I got into this because of the environmental benefits,” says Rockefeller, now a member of the Northwest Power and Conservation Council. “This is one of the few ways we can reduce transportation emissions” — the largest greenhouse-gas source in Washington. “It might actually be a win-win-win for consumers, industry and the public.”
That thinking — more options rather than regulations for business and consumers — was enough to lure most senate Republicans as well as Democrats; Rockefeller’s bill passed 46-3. But as he says now, looking back ruefully. “As soon as you think you have a nice bipartisan bill, watch out!”
Rep. Steve Kirby, a Tacoma Democrat who chairs the House Business and Financial Services Committee, took up the bill, but the earlier harmony had evaporated. Republicans and rural Democrats tended to oppose PAYD, he says: “They were concerned that rural people tend to drive more on routine trips and would pay more” — even if they have fewer accidents relative to their mileage.
Other insurance companies now stood up and took notice, and didn’t like what they saw. Progressive, who had staked out the turf early, held six patents for technologies and processes related to what it calls “usage-based insurance,” UBI. And, in the words of another insurance company official, Progressive “was suing everybody who tried to use it.” Other companies feared that smoothing the way for PAYD/UBI would just help Progressive grab market share by playing a game they couldn’t get into. Civil libertarians feared that Progressive’s black box system, called “Snapshot,” would violate customers’ privacy.
That last concern seemed like a red herring to Kirby. Progressive insists it merely collects data on how and when people drive, not where: Heavy braking and wee-hours driving are the risk factors it tracks, along with miles driven, and when customers indulge in them. (Big Brother Snapshot beeps out a warning that they’re also driving up their premiums.) And, as Rockefeller notes and spy-fiction readers know, we all divulge our locations daily when we turn on our cellphones.
Nevertheless, Kirby’s bill died in committee. Unico meanwhile dropped out of its PAYD partnership with King County. Only a handful of customers had signed up for the trial, perhaps because it offered only a modest discount — 15 percent off regular rates. Unico was also bought by a multinational, which may have deflated its interest in such a local project. (Corporate buyouts are the bane of promising transportation innovations; back in the 90s KeyBank hosted a successful trial of the made-in-Seattle Proximate Commuting scheme, but dropped it when it got bought out.)
Pemco, another Seattle-base insurer, stepped in to undertake a PAYD trial, but then likewise dropped out. “We found it would be incompatible with our automated systems,” says Pemco spokesman Jon Osterberg. “We could devise a manual workaround, but it would be cumbersome.” Harder yet would be to escape offering PAYD if the trial didn’t work out: “You’re not going to dangle a pilot program and then say, ‘Sorry, we’re not going to continue it.’”
Many insurance companies also feared they’d have to reveal too much of their pricing and underwriting strategies to competitors under state insurance disclosure rules that weren’t written to allow for PAYD. Kirby says he reworded his bill to assuage such fears, but the industry still balked: “Every time you satisfied one objection, another would come up.”
Kirby came to suspect that what insurers really feared was that PAYD wouldn’t make and might cost them money. It’s a lot easier to lower rates for low-mileage drivers than to compensate by raising them for road warriors, who can switch to your competitors’ conventional plans. He finally downsized his bill to merely permit Snapshot-style black boxes. It passed.
Is that the end of the road for eco-friendly by-the-mile insurance? Hardly. Despite speed bumps in Washington, the idea is still rolling across the country. Progressive reported in December that it had collected more than $1 billion in premiums from Snapshot customers in 43 states. “One million people have tried Snapshot,” says company spokesperson Erin Vrobel; two-thirds lowered their premiums, and they’ve logged 6 billion black-box miles. After enforcing its patents, Progressive is now licensing the system to other insurers. Pemco’s Osterberg concedes that “this seems to be the direction the industry is going.”
All this despite the fact that the savings Snapshot drivers realize are, like those in the Unico trial, fairly modest — up to 25 percent, typically 10 to 15. That would seem to leave room for newcomers wholly dedicated to PAYD to offer bigger savings, commensurate with miles driven. Upstarts like MileMeter, perhaps, but better capitalized.
Here they come. Across the river in Oregon, Progressive and three other insurers now offer some form of PAYD, according to the online transportation magazine "Portland Afoot." One, a California-based startup with Dallas connections called MetroMile, offers a semi-pure form: by the mile, but on top of a base fee. It strikes the same casual, hip marketing tone as another California import, Car2Go, which recently landed in a big way in Seattle by way of Portland. MetroMile’s operators keep saying they’re too busy “this week” to talk about whether they have plans for the Washington market. Perhaps we’ll have an update one day.
Though he says he hasn’t thought much about PAYD since the bruising it took two years ago, Rep. Kirby warms perceptibly to the idea as we talk. “I would love to revisit this,” he says. “I’d like to go back and see what we can do without Progressive [and Snapshot] attached. I have a feeling we could pass it.”