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Contact:
Meg Wilcox, Ceres 617-247-0700 x 148 | wilcox@ceres.org
Drive Less, Pay Less: Environmental and Transportation Groups Unveil Performance Standard for Pay-As-You-Drive Auto Insurance
December 9, 2009
SAN FRANCISCO -- Today at the National Association of Insurance Commissioners’ Winter Meeting, Ceres and a diverse group of transportation and environmental organizations unveiled a proposed performance standard to rate Pay-As-You-Drive (PAYD) auto insurance policies in the U.S., which save consumers money when they reduce their vehicle travel.
Priced on the amount a vehicle is driven during the policy term, PAYD has the potential to save consumers an average $270 per vehicle insured, according to a 2008 report by The Brookings Institution. If deployed in all 50 states, PAYD could also achieve a 4% reduction in total U.S. greenhouse gas emissions, which contribute to global climate change. Transportation emissions currently account for nearly one-third of total U.S. greenhouse gas emissions.
A dozen states identify PAYD as an effective strategy for reducing greenhouse gas emissions, with Arizona, Colorado, Maryland, Maine, Minnesota, New Hampshire, New Mexico, North Carolina, Pennsylvania, Rhode Island, Virginia and Vermont all including it in their state climate action plans.
“Pay-As-You-Drive is a good example of how insurance can provide a real incentive for consumers to undertake climate friendly behavior. In this instance, it is also a potential source of bottom-line cost savings for consumers,” said Joel Ario, Commissioner of Pennsylvania Department of Insurance, who is attending the NAIC meeting today in San Francisco. “I welcome the opportunity to figure out how to bring PAYD to consumers in Pennsylvania, and this standard is a good first step toward scaling up PAYD across the country.”
Despite PAYD’s promise, only a handful of insurance companies in the U.S. offer self-described PAYD products, with Texas-based MileMeter providing the strongest coverage, and some of these policies provide minimal incentives to reduce mileage. Moreover, there is no metric for judging the effectiveness of an auto insurance product in reducing vehicle miles traveled and related emissions.
Developed by Ceres and a coalition of organizations with extensive experience in auto insurance, the proposed PAYD rating system offers three levels of certification for insurance products, Gold, Silver and Bronze, based on how well they allow consumers to save money by driving less.
“Scaling up Pay-As-You-Drive in the marketplace is essential for maximizing its many consumer, environmental and social benefits,” said Mindy Lubber, president of Ceres. “This performance standard is designed to spur insurers across the U.S. to expand their Pay-As-You-Drive products, and to make them more robust.”
Beyond consumer savings, PAYD offers significant social benefits, including reduced traffic congestion, fewer hospitalizations from traffic injuries and smog-related illnesses, and reduced expenditures on emergency services, benefits Brookings values at $50-60 billion per year.
And unlike gasoline taxes and many other schemes for reducing driving, PAYD presents an opportunity for the majority of consumers to save.
"Pay-as-you-drive policies provide consumers with a financial incentive to drive less, which directly rewards households with savings and indirectly rewards communities with environmental and public health benefits," said Chris Gay, Founder and CEO of MileMeter. "It is encouraging to see respected organizations such as Ceres working to establish a PAYD standard, by which the social and environmental benefits of reduced mileage can be measured."
"Whether offering drivers an easy way to save money in tough times or reducing smog-forming pollution, pay as you drive insurance appeals to anyone who wants to lower their insurance rate by driving less," said Justin Horner, transportation policy analyst with NRDC. "Car insurance should not be treated like an all-you-can-eat buffet. People should be allowed to choose off the menu - instead of being saddled with uniform high costs that don't apply to them."
“Pay-As-You-Drive auto insurance is common sense for consumers and the environment,” added Conservation Law Foundation President John Kassel. “PAYD will help America reach the emissions reduction goals set out by the Obama Administration. Importantly, it will also save money, make auto insurance more transparent and increase equity for consumers.”
Endorsers of the proposed standard include Environmental Insurance Agency, the Victoria Transport Policy Institute, Institute for Transportation & Development Policy, CALSTART, Ceres, Natural Resources Defense Council, Environmental Defense, and Conservation Law Foundation.
Read the standard visit Pay-As-You-Drive Insurance Product Rating System here.
The ratings are:
Gold
Premiums are priced 100% by the vehicle-mile, incorporating all existing rating factors. Insurers may require the purchase of up to 2,000 annual miles and must allow subsequent purchases in units of 100 miles or fewer. Different rates may be charged for different “bands of miles”, i.e. the first 2,000 miles may be priced at a higher rate than the next 1,000 miles; however, the per-mile price may not vary by more than a factor of two.
Silver
Offers premiums that are at least 70% priced by vehicle mile, incorporating all existing rating factors. Insurers may require the purchase of up to 3,000 annual miles and must allow subsequent purchases in units of 250 miles or fewer. Different rates may be charged for different “bands of miles”, i.e. the first 2,000 miles may be priced at a higher rate than the next 1,000 miles; however, the per-mile price may not vary by more than a factor of two and a half.
Bronze
Offers premiums that are at least 50% priced by vehicle mile, incorporating all existing rating factors. Insurers may require the purchase of up to 4,000 annual miles and must allow subsequent purchases in units of 500 miles or fewer. Different rates may be charged for different “bands of miles”, i.e. the first 2,000 miles may be priced at a higher rate than the next 1,000 miles; however, the per-mile price may not vary by more than a factor of three.
About Ceres
Ceres (www.ceres.org) is the largest coalition of investors, environmental and public interest organizations in North America working with companies to address climate change and other sustainability challenges. Ceres also directs the Investor Network on Climate Risk, a network of more than 80 institutional investors with collective assets totaling $8 trillion focused on the business impacts from climate change
About The Natural Resources Defense Council
The Natural Resources Defense Council (www.nrdc.org) is the nation's most effective environmental action group, combining the grassroots power of 1.3 million members and online activists with the courtroom clout and expertise of more than 350 lawyers, scientists and other professionals.
About Conservation Law Foundation
Conservation Law Foundation (www.clf.org) works to solve the most significant environmental challenges facing New England. For more than a decade, CLF has advocated for mileage-based insurance as a common sense solution to reduce greenhouse gas emissions and create equity for consumers. CLF established the Environmental Insurance Agency (www.clfventures.org/eia), the first insurer in Massachusetts to offer policies that reward drivers for reducing their mileage.
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