Pay As You Drive (PAYD) Insurance (Not in Energy Aware Planning Guide)


Pay-as-You-Drive, or mileage-based, insurance is a method to transfer much of the fixed cost of operating a vehicle into a variable cost. When consumers face a higher variable cost of driving they have an incentive to reduce the miles they drive. PAYD can take the form of a surcharge on gasoline purchases, or can be based on self-reported or actual miles driven. PAYD insurance programs have been proposed in California and other states and countries. Insurance companies in the US have recently offered mileage-based insurance premiums. In theory mandatory PAYD insurance would in aggregate cost the same as the current insurance system, but costs and savings would be reallocated from drivers who drive fewer than average miles per year to those who drive more.

Key Numbers

Effectiveness and Cost-Effectiveness

Moving Cooler Forecast in 2050
Moving Cooler Measure Effectiveness
(mmt GHG reduced)
($/ton GHG reduced)
Expanded Current1 Aggressive Deployment2 Maximum Deployment3 Expanded Current1 Aggressive Deployment2 Maximum Deployment3
Pay-as-You-Drive Insurance 789 1,677 2,233 $210 $99 $74
Moving Cooler Medians 45 59 83 $205 $163 $116

1 Expanded Current Practice (expansion of current trends and state of innovation). This level of deployment assumes that the strategies are expanded and steadily implemented, consistent with existing practices for reducing GHG emissions, and focusing predominantly on major metropolitan areas.

2 Aggressive Deployment (faster, broader, and stronger implementation). Strategies are implemented sooner, more broadly, and more intensively. For example, pricing strategies would be implemented in a wide range of metropolitan areas, and requirements would be established for the penetration of PAYD in all 50 states.

3 Maximum Deployment (comprehensive, rapid, intense implementation). At this level, substantial policy changes and significantly increased levels of investment—consistent with a singular commitment to reduction in GHGs—are assumed to implement strategies at very high levels of intensity nationwide.

Assumes all states allow voluntary mileage-based insurance, with the installation of transmitters to allow remote reading of vehicle odometers.

Modeling Assumptions: Moving Cooler page B-14

Cost Assumptions: Moving Cooler page C-10

Moving Cooler

Other Findings

A thorough discussion of the benefits of PAYD and how such a program could be implemented can be found here: [PDF]

A discussion paper estimates that a national PAYD program would reduce driving by about 8 percent, carbon dioxide emissions by about 2 percent, and oil consumption by about 4 percent. A $1-per-gallon increase in the price of gasoline would be necessary to achieve the same reductions. The paper estimates that almost two-thirds of households would pay less for auto insurance because of fewer crashes due to reduced driving, with each of those households saving an average of $270 per car. The authors note that there are several barriers to widespread adoption of PAYD, including the cost to monitor miles traveled and some state insurance regulations (Bordoff and Noel 2008a).


An analysis of PAYD in California found that a statewide program would benefit low-income drivers in particular, with households making less than $47,500 (in 2001) saving money on average. Aa majority of households are better off in higher income groups. Most California households of each ethnicity would save money with such a program. Finally, a similar portion (62 to 64 percent) of rural and urban households would save money under a statewide PAYD program (Bordoff and Noel 2008b).


None identified.

Policy Context

Existing Regulations/Policies

The California Department of Insurance recently required that insurance companies offer a form of PAYD or mileage-based insurance to California drivers. Premiums will be based on traditional rating factors, such as driving record and years of experience, as well as the number of miles driven over the policy period. Whether mileage will be self-reported by the insured, or based on odometer inspection by the insurer or a third party, has not been determined.

As of August 2010, two insurance companies, State Farm and the Automobile Club of Southern California, have applied for rate plans for PAYD insurance in the state.

Implementation Level

Regional. A compulsory PAYD insurance system would have to be implemented at the state level. However, government fleets and private vehicle owners could voluntarily purchase mileage-based insurance from insurance providers.

Population Density Required

Urban, suburban, or rural. A statewide PAYD system would apply to all vehicles statewide, while fleets or private vehicles could voluntarily purchase mileage-based insurance regardless of where they are driven.

Implementation Details

None identified.

Model Policy Language

None identified.

Model Ordinances

Texas House Bill 45, passed in 2001, allows insurers to offer per-mile pricing for vehicle insurance. The bill requires insurance companies to track and report the claim losses and premium revenues for mileage-based versus time-based premiums.

Case Studies

Various organizations in Texas are working together on a Cents Per Mile For Car Insurance campaign to promote Pay-As-You-Drive vehicle insurance in response to the 2001 legislation.

The Progressive insurance company offers Snapshot policies which provide discounts based on when, how much and how a vehicle is driven. Cars that are driven less often, in less risky ways and at less risky times of day can receive large discounts. Participating motorists receive a device which they plug into their vehicle's On-Board Diagnostic computer (OBDII) port; the device records how far, how fast and when the vehicle is driven, and transmits the data to a central receiving station. This information is used to calculate discounts the customer may receive when they renew their policy.

MileMeter is a private insurance company which began selling insurance policies by the mile in Texas in 2008. All policies, which are purchased over the internet, are valid for a certain number of miles or a six-month period. Motorists report their odometer reading when they purchase or renew a policy. To insure accuracy, this information is cross-referenced with any odometer readings from vehicle emission inspection programs and registration databases.


Energy Aware Chapter


Cross-references to Other Measures in Energy Aware


Other Resources

VTPI: Pay-As-You-Drive Vehicle Insurance


  1. Bordoff, J.E. and P.J. Noel. 2008a. Pay-As-You-Drive Auto Insurance: A Simple Way to Reduce Driving-Related Harms and Increase Equity, The Brookings Institution.
  2. Bordoff, J.E. and P.J. Noel. 2008b. The Impact of Pay-As-You-Drive Auto Insurance in California, The Brookings Institution.