As Americans from all parts of the country continue to see sharp increases in the premium rates of their automobile insurance, millions are wondering about the future of auto insurance pricing. Certainly, it cannot continue to just rise and rise. Still, the insurance providers claim that they are not increasing their profit margins, simply maintaining them. They state that the costs associated with medical care provision, automobile repairs and body shop expenses, legal fees, lawsuit payouts and more are all causes of their repetitive rate hikes.
There is hope on the horizon though; it's called Pay As You Drive (PAYD) insurance.
What is PAYD insurance?
Pay as you drive insurance differs from traditional vehicle insurance in that it does not represent a fixed cost associated with the use of your vehicle. Instead, insurance pricing becomes variable with respect to the amount of travel a vehicle is used for. In other words, with PAYD, premium rates are in direct relation to the amount of miles driven annually. Pay As You Drive insurance is spreading in popularity like wildfires in Cali and Americans everywhere want it. They'll have it too. It's just going to take some time to fully implement.
Fast facts about Pay As You Drive (PAYD) automobile insurance, the future of car insurance pricing:
- With PAYD, each policyholder prepays for their insurance coverage based on their expected travel mileage. When the coverage term completes, the policy holder will either pay a balance for overages or receive a rebate based on underages. As you might expect, pre-paid miles will cost less than post-paid miles.
- Insurance providers can monitor the mileage of a given vehicle with in-vehicle diagnostic instruments, GPS systems and/or simply by checking the odometer.
- PAYD insurance cost less than conventional auto insurance because of simple probabilities. The fact is that, even when in motion, there is a small chance that a given vehicle will be involved in an accident. And when a vehicle is parked, there is practically 0% probability of sustaining, or causing, damage. So, by basing the cost of insurance premiums on the amount that a given vehicle is used, the insurance company is guaranteed to incur less risk per-mile driven.
- Motorists who drive a high number of miles annually tend to exhibit lower per-mile accident rates. Conversely, those who drive few miles annually tend to exhibit higher per-mile accident rates. That makes it unfair to charge everybody the same per-mile rate. The factors that are already used to determine premium rates are recalculated to include the amount of miles driven annually. The result is ever-increasing accuracy in projections, and increasingly fair pricing for policyholders. So, you can be sure that the actuaries at your insurance company will factor in several relevant considerations when determining your per-mile pre-paid PAYD rates.
Benefits associated with PAYD Insurance:
- Increased actuarial efficiency;
- Drivers are naturally encouraged to drive less, lessening emissions;
- Likewise, less fuel is used;
- Consumers have more choices available and therefore save more money;
- Automobile insurance is made more affordable for all;
- Less people will drive uninsured;
- Decreases in driving yield decreases in traffic congestion;
- Taxation monies will be saved due to less road and parking facility wear;
Pay as you drive auto insurance is going to heavily affect the future pricing of all vehicle insurance pricing, for all people, in every state. The industry has not changed to fully accommodate PAYD insurance yet, but the wheels are in motion. Watch for it.
