Are You Driving Less and Enjoying Life More?
Pay-per-mile (PPM) and non-owner
auto insurance can help the environment and save you money
With Pay-per-mile (PPM) auto insurance, car owners save money by driving less. It’s a win-win for you and for the health of the planet.
Insurance costs nearly as much as fuel in a standard gas-powered vehicle. Yet with conventional car insurance, you pay the same amount each month, no matter how much you drive. PPM turns insurance, a major fixed cost of auto operation, into a variable one that you can control with your driving choices.
Many studies have shown that car owners with insurance that’s linked to mileage do drive less. Research from the US Department of Transportation estimated a VMT (vehicle miles traveled) reduction of between 5 and 10% percent per year when car owners know they’re paying for every mile. The Brookings Institution, a nonprofit think tank, found that “drivers nationwide would reduce miles traveled by about 8 percent” with such coverage.
Positive impacts of pay-per-mile insurance
Less driving achieves important personal, societal and environmental benefits:
Car owners save money because they’re only insuring the miles they actually drive. This is particularly important since the pandemic when many people switched to working from home.
Congestion and drive times will be reduced when “normal” traffic levels return. The outsized impact of even small mileage reductions was recently observed in a study by researchers in Australia. They found that “On congested roads, reducing traffic by 5% can increase traffic speeds by up to 50%.”
It’s more sustainable. Several studies from the US and Canada have confirmed that pricing insurance by the mile reduces energy consumption, carbon and other pollution emissions.
Less driving means fewer collisions. A 2010 study of PAYD insurance commissioned by a leading US environmental group found “a strong relationship between miles driven and accident claims frequency and loss costs.”
It’s more equitable because distance-based insurance corrects for inherent subsidies from lower-annual-mileage-customers to higher ones. Multiple studies have noted this feature, with one stating that such insurance products are “progressive with respect to income, since lower-income motorists tend to drive less than average.”
How does the billing for pay-per-mile and
non-owner auto insurance work?
With conventional auto insurance, the amount that you pay from one billing period to the next remains constant. This is shown in the left bar of the diagram below.
With pay-per-mile, shown in the right bar of the diagram below, the billed amount will vary based on the miles you drive. It includes a base amount that is constant, with a per-mile charge added on top that reflects the miles you have driven during the invoiced period. Both the base amount and the per-mile charge are initially set by your insurer after a review of basic information including your age, driving record, claims history, the make and type of vehicle and where it’s garaged. Some insurers look at additional information such as your credit history and the length of time you have retained your current coverage.
Non-owner coverage, for people who don’t own a car, but rent or share them by the week, day or hour is available from Geico, Mile Auto, Progressive and State Farm. With Mile’s non-owner product, one pays only a base amount, but no per mile charge.
Is pay-per-mile insurance right for you?
Consumers should consider some form of distance-based auto insurance if they are driving less than the US average of 13,500 miles per year (pre-pandemic). Indeed, those who work from home, are a student or a retiree, or regularly commute on foot, by bike or on public transit may see a big reduction in their monthly insurance premium. It may also make sense in a two-car household if one vehicle is driven much less than the other.
When considering distance-based insurance, it’s important to determine what kind of coverage will be most suited to your needs, budget and concerns about personal privacy. There are currently several different insurance products that link premiums to the miles you drive:
Pay-per-mile (PPM) insurance — offered by companies such as Allstate, Metromile, Mile Auto and Nationwide — is one category of distance-based insurance. With PPM, the amount you owe each month will vary based only on the miles that you drove during the invoiced period.
Pay-as-you-drive (PAYD) insurance is similar to PPM, except that with PAYD, insurers are considering mileage together with other factors including your vehicle’s location and speed, time of day or night when you’re driving, hard braking and sudden acceleration. Companies reason that if they know more about your behavior behind the wheel and your use of the vehicle, they will be better able to predict the extent of future claims and thus, the true long-term cost of insuring you/your vehicle. Firms that offer PAYD insurance include Farmers, Liberty Mutual, Travelers and USAA. Some forms of PAYD are also referred to as usage-based insurance (UBI) or pay-as-you go insurance.
Pay-per-mile technology and your privacy
The recent growth of distance-based insurance has been enabled by advances in “telematics” to monitor driver behavior. High-tech devices — typically a “dongle” that resides in the OBD-II port (photo below, left) of newer model-year cars — use GPS tracking to learn about your driving habits and vehicle use. The newest vehicles have even more advanced telematics built into the “connected-car technology” that’s part of their internal operating system. The data itself, collected during an up-front “audition” period, or later, at random times (sometimes without a driver’s knowledge), helps insurers to create a detailed customer profile that they reference when pricing coverage or when granting safe-driver discounts. Although the information that insurance companies obtain is useful to them, many customers find the monitoring process to be an unwelcome intrusion into personal privacy.
To address such privacy concerns, one PPM insurer, Mile Auto, uses a unique monitoring method that, does not use a dongle or other “black box” technology to receive information from customers. Instead, drivers use their own smartphone camera once a month to record and transmit their mileage, as they respond to a text message sent from the insurer. With Mile Auto’s system (photo above, right), drivers know that the only information the company ever obtains is mileage.
An added benefit of not using a dongle is that it eliminates the insurer’s expense for hardware and monitoring. The one-time cost for a dongle is about $125-250; ongoing monitoring of data from the device or other connected-car technology is estimated at around $50 per year. Eliminating such costs of surveillance results in lower premiums.
Insurance firms that obtain detailed information about drivers and their vehicles point to safety as their main reason for seeking such information, and there is merit in that claim. Interactive programs from firms including AAA, Hartford and Root, ask customers to download a smartphone app that’s able to monitor a wide range of driving behaviors. With a direct channel for observation and feedback, insurers can coach customers into safer practices behind the wheel and encourage them to maintain such practices with safe-driver discounts. Some customers appreciate such information and incentives, especially when they are sharing cars with teen drivers. Others, who fear a loss of personal privacy, prefer systems like the one used by Mile Auto that collect only the total number of miles driven each month.
There’s an important grey area between PPM and PAYD that potential customers should consider: Although insurers who offer PPM insurance use only mileage to determine their monthly charges, nearly all such providers (except Mile Auto) gather the full suite of information about driver behavior and vehicle use that PAYD insurers do. In so doing, insurance companies can use that knowledge for a wide range of purposes, including setting rates for future coverage. As far as SmartGO is aware, there is no legal restriction on insurers’ use of such data, for that or any other purpose, once it is in their possession.
With PPM and non-owner insurance,
you still need to mind the basics
If you are shopping for PPM insurance that’s comparable to your current coverage, it’s important to check that all the limits for liability, comprehensive, collision and uninsured motorist coverage are the same or better than what you have now. Changing to a different billing format should not cause any of your current benefits or coverage levels to decrease.
Many people who have turned to active transportation modes like walking and cycling appreciate the generous medical benefits provided by some PPM and non-owner insurance offerings for collisions with an uninsured, underinsured, or hit-and-run driver. This article from Streetsblog USA suggests that auto insurance is the best protection for when you are sharing the road with fast-moving, potentially dangerous cars and trucks. Not all PPM policies, however, offer such protection. Be sure to check whether coverage for collisions when you’re not in a car is included in the policy that you are considering.
If you’re thinking about making a change to your insurance, it’s important to note that you don’t need to wait until your current policy is expiring. States generally require insurers to provide a full refund for any unused portion of a policy, so you can change insurance whenever it’s convenient for you.
If you are a low-mileage driver, now is a great time to consider the environmental benefits and monetary rewards that can be achieved by switching to pay-per-mile or non-owner insurance. SmartGO is pleased to connect you to a licensed insurance entity to learn how much you can save in Arizona, California, Florida, Georgia, Illinois, Ohio, Oregon, Pennsylvania, Tennessee, Texas and Wisconsin (other states available soon). The process is easy, simple and quick.
