US launches green pay-as-you-drive insurance push

A group of US environmental and transport organisations yesterday unveiled a new standard and ratings system for pay-as-you-drive (PAYD) car insurance schemes designed to boost uptake of the innovative insurance policies.

The new standard will rank PAYD policies in three categories - gold, silver and bronze - and is intended to provide consumers with an easy way of differentiating between the host of industry offerings that have emerged in recent years and currently differ widely in their adoption of pay-as-you-drive models.

"Scaling up PAYD in the marketplace is essential for maximising its many consumer, environmental and social benefits," said Mindy Lubber, president of Ceres, a group of investors and environmental organisations that has worked on the new ranking system.

She added that the new performance standard was designed to "spur insurers across the US to expand their PAYD products and to make them more robust".

Other organisations that have endorsed the proposed ratings system include the Natural Resources Defense Council, the Environmental Insurance Agency and the Victoria Transport Policy Institute.

While standard quotes are based on a driver's age, marital status, home area, employment status and annual mileage estimates, PAYD schemes are instead founded on how much a vehicle is actually driven during the term of each individual policy. As a result, the PAYD model has been touted by insurers as a green alternative to conventional insurance as it encourages motorists to only take necessary journeys.

Under the proposed new ratings system, a gold classification would mean that all vehicle miles were accounted for under PAYD principles and that insurers require customers to buy up to 2,000 miles annually. Subsequent purchases would then have to be made in units of 100 miles or less and different rates can be charged for different "bands of miles".

A silver label would be awarded to products where 70 per cent of the premium price was based on vehicle miles and where insurers require consumers to purchase up to 3,000 annual miles. Subsequent purchases must be made in units of 250 miles or less and different rates could also be charged for different bands of miles.

A bronze rating, meanwhile, would be attributed to policies where at least 50 per cent of the cost was based on vehicle miles and insurers could demand that clients buy up to 4,000 annual miles. Subsequent purchases must be made in units of 500 miles or less.

According to the Brookings Institution, PAYD policies can save consumers an average of $270 per insured vehicle because they are provided with a financial incentive to drive less. The think tank also calculated that if deployed in all 50 states, PAYD could achieve a four per cent reduction in total US greenhouse gas emissions.

However, only a handful of insurance companies in the US currently offer PAYD policies, with many providing minimal incentives to reduce mileage. This is despite the fact that 12 US states, including Arizona, Colorado and Maryland, have included support for PAYD initiatives in their climate action plans.

The UK, meanwhile, witnessed the launch of a second wave of PAYD schemes earlier this year. Although such policies have been available for at least three years, uptake has been slow and the pioneer Norwich Union put its policy on hold last year due to the high cost of the infrastructure needed to measure car mileage.

However, a range of insurers including Co-operative Insurance, Allianz Insurance and Equity Red Star are now offering PAYD policies through web-based brokerage firm, Coverbox.