Photo by dlisbona on Flickr.

Pay-as-you-drive auto insurance is an important tool to unbundle the costs of driving. Today, car insurance premiums depend on the driver’s record and amount of experience, but have almost nothing to do with whether the policyholder drives one thousand miles a year or one hundred thousand miles a year. The more you drive, the better deal you get on your insurance. That’s unfair to those who drive less, and creates a backward economic incentive.

California’s state insurance commissioner took steps last week to legalize this type of insurance. The Brookings Institution, which has published research showing the benfits of PAYD, concluded that two-thirds of California households would save money, especially low-income drivers but including drivers in all income groups, ethnicities, and rural and urban households. Overall, implementing PAYD would cut auto use 8 percent, Brookings projects, cutting pollution, saving money on health-care and disability payments, reducing accidents and cutting congestion.

Progressive already offers a program, MyRate, in Maryland, New Jersey, Alabama, Minnesota, and Oregon. Unlike California’s proposal, MyRate not only considers total mileage, but also driving speeds, aggressive driving, and time of day, by using a special electronic device that plugs in to the car. This is the sort of plan loved by economists and loathed by privacy advocates, who successfully lobbied California to prohibit GPS tracking in PAYD programs.

Whether the plans use a GPS or just an odometer reading, they’ll be most effective when drivers perceive a direct connection between their behavior and their insurance costs. Progressive’s program shows drivers how they’re doing online, with graphs of driving behavior, comparisons to the average MyRate driver, and up-to-date information about their discounts.

As we’ve learned from experiences like the ambient orb for power consumption, the more feedback people get and the closer it is to real-time, the bigger the effect on behavior. Ideally, Progressive’s device could flash some statistics while the driver is on the road, just as the Prius’s onboard display shows owners their real-time gas mileage and helps train them to conserve as much as possible.

An odometer system wouldn’t do any of this, of course, but insurers could tell drivers a simple cost per mile, or suggest thinking about it in terms of an average added insurance cost per gallon of gas, or even provide an online calculator so they can compute the incremental insurance cost (and gas cost) of a long car trip.

Even a small reduction in VMT is significantly reducing auto fatalities. PAYD insurance will help reduce VMT further, while eliminating the unfair pricing structure that penalizes those who don’t commute by car or commute only short distances. Let’s bring it to DC and Virginia!

David Alpert created Greater Greater Washington in 2008 and was its executive director until 2020. He formerly worked in tech and has lived in the Boston, San Francisco Bay, and New York metro areas in addition to Washington, DC. He lives with his wife and two children in Dupont Circle.