Pay-As-You-Drive Auto Insurance (PAYD)
CLF advocates for solutions to reduce the amount of vehicle miles traveled (VMT), a key component to reducing greenhouse gas emissions from the transportation sector. In addition to its extensive policy work to improve transportation choices in both urban and rural communities across New England, CLF is advocating for the adoption of mileage-based insurance known as Pay-As-You-Drive (PAYD). PAYD is a type of insurance that rewards car owners for driving less. PAYD auto insurance is priced at a cents-per-mile rate, rather than as the traditional lump sum premium.
CLF is also developing the PAYD market through an innovative social enterprise: The Environmental Insurance Agency (EIA). EIA is a for-profit subsidiary of CLF Ventures and has the mission to bring mileage-based insurance to New England and beyond. EIA markets auto and homeowners’ insurance in Massachusetts and New Hampshire and collaborates with leading environmental non-profit organizations to offer their members discounts on these unique products.
A November 2010 study, commissioned by CLF in conjunction with EIA, and written by MIT Professor Joseph Ferreira, Jr. and Eric Minikel, found a significant correlation between miles driven and risk and confirms that mileage is an accurate predictor of risk, laying the groundwork for adoption of PAYD auto insurance. Overall, the study confirms the actuarial soundness of PAYD pricing and indicates that the PAYD approach would significantly reduce miles driven, auto accident losses, insurance costs and greenhouse house emissions, creating a win-win-win situation for insurers, consumers and the environment. Among the key findings are that PAYD can save consumers money and is a more accurate and fairer way to price insurance, and that PAYD reduces vehicle miles traveled (VMT), accidents and fuel consumption by 5-10 percent.