Pay-As-You-Drive Pricing and Insurance Regulatory Objectives

This article evaluates Pay-As-You-Drive (PAYD) vehicle insurance pricing with regard to insurance regulatory objectives. PAYD pricing means that insurance premiums are based directly on the amount a vehicle is driven during the policy term. It changes the exposure unit from the vehicleyear to the vehicle-mile, vehicle-kilometer or vehicle-minute. It incorporates other rating factors so lower-risk motorists pay less and higherrisk motorists pay more per unit of travel. It gives motorists a new financial incentive to reduce their annual mileage, and therefore, decreases their chance of having crashes and insurance claims. PAYD pricing tends to support insurance regulatory objectives, including increased actuarial accuracy, increased insurance affordability, reduced uninsured driving, and reduced traffic accidents. It can also help achieve other social objectives, including reduced traffic congestion and pollution emissions. It is currently being tested by some insurance companies.