Mileage-based vehicle insurance programs permit drivers to pay their automobile premiums on a variable scale, dependent upon how much they drive each vehicle. In 2001, the Texas Legislature passed House Bill 45 that allowed Texas insurance companies to offer mileage-based automobile insurance. Current industry practice recognizes this concept, but on a very limited basis. This new initiative would permit customers to purchase insurance on a per mile basis, rather than a fixed annual premium. Since the cost of coverage is directly tied to use of the vehicles, Pay-As-You-Drive (PAYD) insurance is a strong incentive to drive less and pollute less. This strategy compliments current Regional Transportation Council (RTC) efforts to promote the concept of sustainable development throughout the region.
A two-step approach for conducting a PAYD Insurance Pilot Program was devised from regional input and thorough research of literature and previous case studies of mileage-based insurance programs. The RTC provided up to $1.5 million in federal funding for Phase 2 of the PAYD Pilot Program. There was no procurement process in Phase 1 and no funds were authorized for insurance companies.
Phase 1: The first phase of the PAYD Pilot Program is an information-based evaluation utilizing existing data sources to determine the relationship between mileage driven and risk incurred. This approach will test the theory for the insurance industry that lower mileage translates into lower risk and; therefore, a reduction in claim costs.
Phase 2: The second phase of the PAYD Pilot Program expands upon and is intended to validate the study conducted in the first phase, but also measures consumer response to a reduced premium incentive. The goal of the second phase of the program is to determine if a PAYD option will actually induce regional drivers to reduce their mileage and what effect this may have on air pollution emissions. Through an open Request For Proposals, the North Central Texas Council of Governments entered into a partnership with Progressive County Mutual Insurance Company to offer a mileage-based pricing option to its customers and track the effect of the pricing on customer mileage. There was overwhelming response to requests for participation in the program in the North Texas region. Due to funding limits, participation was limited to the first 3,000 respondents. Data collection began in May 2006 and concluded in September 2007.
Mileage-based insurance currently available to Texas drivers:
Available in other states or countries
Texas Senate Bill 184: No Regrets Strategies: Pay-As-You-Drive Car Insurance
Environmental Defense Fund: Drive Less, Pay Less for Insurance
The Brookings Institution:
A Simple Way to Reduce Driving-Related Harms and Increase Equity
Victoria Transport Policy Institute: Distance Based Pricing