Richard Factor: “I just read an article about an experimental program in Texas that puts your ‘pay for auto insurance at the pump’ to shame. There is an insurance company that is actually using GPS to track the location of your car and the hours that it’s driven. They then charge according to how much you drive, the risk of the location, and the time. For example, daytime driving is safer, so the charge per hour is less. The more you drive, the more you pay. They don’t mention tracking such things as speed, but it could be done easily, and they could charge speeders more even if they were never cited.”

The experiment is by Progressive Insurance, which always has been progressive. But while very possibly good for Progressive, which may gain market share and profit, and definitely good for low-mileage drivers, this actually wouldn’t do much of anything to make auto insurance as a whole less of a mess. In most states (Michigan is the prominent exception), you would still have the same incentives to inflate or invent claims that you have now (there is no such incentive in Michigan), the same high costs overall, and thus the same levels of uninsured motorists.

The two modest systemic advantages I see:

  • To save money, those who signed up for such a plan might drive a little less or at less dangerous times or less dangerous routes (or slower). But I think this effect would be slight, and it would come with a cost — having to curtail their driving. With pay-at-the-pump, by contrast, you could cut your insurance cost without driving less, by choosing to buy more fuel-efficient cars.
  • Because they felt they were getting a fairer shake, those who benefited from this plan might be a little less likely to inflate or invent claims. But the kind of driver who would find this plan appealing might not be the kind of driver most likely to inflate or invent claims in the first place.

With this new system, you would still have states like California and Florida where half or more of the liability portion of your auto insurance premium goes to pay the costs of lawyers and fraud. Basically, the system would (not unfairly) lower costs for some kinds of drivers, who drive less or in safer places or at safer times (or slower speeds) and shift them to the rest of the driving public. But not lower the overall cost of the system.

I hope it catches on, because I don’t drive much.


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