Americans Are Driving Less But Paying More for Insurance: What Gives?
It may seem counterintuitive, but just as Americans are driving substantially less (indeed, the fewest miles since 2003), auto insurance premiums countinue to rise.
Smartmoney.com reports in "Hey Flo: Where's My Insurance Discount?" that according to the Insurance Information Institute, companies have raised their rates by an average of 10% from 2008 to 2010, and may raise them another 4% on average this year.
Now, you may ask why we are paying more for auto insurance when we're spending less time actually, y'know, driving?
Well, industry representatives point to two primary causes: the rising costs of medical care related to claims, and the high number of uninsured drivers.
Fortunately, there's an approach to auto insurance that can help lower costs not only for drivers but for insurance companies: Pay As You Drive (PAYD) insurance. By tying premiums directly to the number of miles someone drives (most policies don't) you can chip away at these two drivers of higher premiums, while saving yourself money and helping the environment.
For example, according to a study by MIT's Joseph Ferreira, claims and mileage are directly related: less driving means fewer claims . By rewarding and incentivizing less driving (which also lowers pollution), PAYD can reduce the number of claims filed, and, consequently, total claims cost.
Secondly, PAYD can actually make insurance more affordable by giving drivers more control over the cost of their premium. Instead of buying a full-blown policy for the average driver, lower income drivers (who drive fewer miles on average) can buy a PAYD that will charge them based on what they actually drive. Many uninsured drivers probably can't afford to pay for insurance they never really use. PAYD can help uninsured drivers buy an affordable policy that can meet their needs.
Fortunately, more and more companies are exploring PAYD and other usage-based approaches to auto insurance. It looks like what's good for drivers and the environment, may also just be good for insurance companies, too. Go figure.