The following is a letter from Jason Bordoff and Pascal Noel to the New York Times, and posted in their "Opinions Section".
There is not really anything new that has not been posted on this blog before, but the letter is eloquent and states a clear answer to the question of what happens if people drive less. The point being that current insurance pricing does not adjust efficiently for it, and insurance companies will make abnormal profits in the short to medium term in response to less driving. So Pay As You Drive is a much better consumer proposition in response to less driving.
Source: New York Times
Lower Premiums
"Hit Up for High Premiums" (Business Day, Aug. 23) reports that auto insurance premiums are rising even though Americans are responding to higher gas prices by driving less, which means fewer accidents and thus fewer insurance claims.
If auto insurance premiums were priced per mile driven rather than as a lump sum per year, drivers would automatically see insurance costs decline when they drive less and would not have to rely on insurance companies to respond to reduced driving with lower premiums.
According to our most recent research, such pay-as-you-drive auto insurance pricing would save two-thirds of households money on auto insurance, with an average savings for those households of $270 per car.
The system would also give drivers incentives to drive less, which would mean reduced accidents, congestion, carbon emission, oil dependence and pollution — benefits we estimate to be between $50 billion and $60 billion per year.
Jason Bordoff
Pascal Noel
Washington, Aug. 27, 2008
Published 2 September 2008.
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