Designing Pay-Per-Mile Automobile Insurance Regulatory Incentives Using NHTSA Light Truck CAFE Rule as a Model

By converting fixed insurance costs to per-mile charges, pay-as-you-drive-and-you-save (PAYDAYS) insurance would encourage voluntary reductions in driving with concomitant decreases in congestion, air pollution, crashes, and insurance claims. Despite these benefits, a range of technical, regulatory, and marketing challenges, and the related costs to address them, have, as of this writing, precluded anything more than a small amount of industry experimentation with the concept in the U.S. In other circumstances where the products offered in the marketplace have been found to be important to meeting public policy objectives, government intervention in markets has sometimes occurred. Recently, the National Highway Traffic Safety Administration (NHTSA) issued a final fuel economy rule for light trucks that is intended, as its principle objective, to maximize net benefits (1). This paper explores how an analogous benefit-maximizing rule could be structured to encourage adoption of PAYDAYS insurance. The key to designing such a benefit-maximizing rule is to determine: a) the net benefits of every mile not driven (about 16¢); b) the reduction in mileage that would result from PAYDAYS insurance (about 10%); and, c) to then calculate the net benefits of every PAYDAYS-insured mile (about 1.6¢). In one possible design of a rule, insurance companies might be offered incentive payments equal to this benefit. A mechanism by which the industry itself funds the incentive payments is described, as are alternatives. Companies would likely only offer such insurance—and the industry itself would only incur related expenses—if the 1.6¢-per-mile payment exceeded their costs of offering it.


  • English

Media Info

  • Media Type: CD-ROM
  • Features: References; Tables;
  • Pagination: 15p
  • Monograph Title: TRB 86th Annual Meeting Compendium of Papers CD-ROM

Subject/Index Terms

Filing Info

  • Accession Number: 01046873
  • Record Type: Publication
  • Report/Paper Numbers: 07-3457
  • Files: BTRIS, TRIS, TRB
  • Created Date: Feb 8 2007 8:08PM