Recommendations for Implementation

This paper provides guidance for implementing Pay-As-You-Drive (PAYD) vehicle insurance, which directly incorporates mileage as a rate factor. It describes PAYD pricing options, discusses PAYD benefits and costs, describes regulatory reforms, evaluates various objections to PAYD, and provides specific recommendations for PAYD implementation. Various data sources indicate that crash costs increase with annual vehicle mileage. As a result, PAYD increases actuarial accuracy (premiums better reflect a vehicle’s claim costs). PAYD pricing rewards motorists when they reduce their mileage, providing financial savings and additional benefits including increased safety, congestion reduction, road and parking facility cost savings, energy conservation, emission reductions, and increased insurance affordability. Although there are several possible ways to implement PAYD insurance, some provide more benefits than others. Insurance regulators can maximize benefits by defining performance standards that policies must meet to be considered PAYD, as described in this paper. Critics raise various objections to PAYD pricing, but many of these are technically inaccurate or can be addressed with appropriate implementation practices.