Congratulations are due to ICBC for wanting to refine insurance rates so those responsible for accidents take more responsibility for their costs. Too bad about the choice of higher premiums for a single speeding ticket.
ICBC cited data apparently showing that drivers who get caught speeding or committing other traffic violations are twice as likely to have an accident as those who don’t.
If the corporation’s search for fairer insurance premiums is sincere, it should look at another inequity in its billing that’s not only backed up by reams of data from other markets, but also, unlike the speeding ticket proposal, oozes common sense. Known as pay-as-you-drive (PAYD) insurance, it adds distance travelled to the mix of factors that determine insurance rates.
I like to think of it as fair-rate insurance. Mileage driven affects accident rates, so basing insurance on distance travelled is a fairer way of allocating responsibility to those at higher risk of having an accident. Today, lower-mileage drivers subsidize higher-mileage drivers. Why should someone who drives only a few blocks to church on Sunday pay the same insurance as a person who drives long distances every day?
Just like the proposed speeding ticket change, PAYD aims to reduce the unfair subsidy paid by low-accident drivers to those who have more accidents, only it’s based on much more reliable data than a single traffic ticket.
PAYD insurance is now an option in Ontario, the Netherlands, Japan, Israel, South Africa and in 19 U.S. states. California insurance giants State Farm Mutual and the Auto Club of Southern California just introduced it in February and other insurers are expected to follow. The Brookings Institute in the U.S. found that using this pricing model would reduce private vehicle travel by about 8% and reduce emissions by 2%.
A new paper just released by Todd Litman of the Victoria Transport Policy Institute, commissioned by the Pacific Institute for Climate Solutions, shows that in other jurisdictions where PAYD has been implemented, motorists drive between 5% and 15% less when they know they can save money by reducing their mileage. He estimates the cost per kilometre could come out at around $0.06. Less driving results in fewer accidents and lower costs for ICBC.
As a monopoly with societal as well as a corporate financial responsibilities, ICBC is in a unique position to be a vehicle for the indisputable wider benefits that accompany PAYD: lower health-care costs, lower police costs, less congestion, less pollution, lower road expansion costs and fewer greenhouse gas emissions.
PAYD also opens up car ownership to low-income people who need a vehicle for occasional use, but can’t afford full-rate insurance under the present system.
To those who object that this would place a burden on people who have no choice but to drive long distances, that won’t necessarily happen. PAYD can be optional. The savings to ICBC from the lower-mileage drivers could be passed on to them, while everyone else keeps paying flat rates the way they do now.
PAYD need not involve invasive tracking devices on vehicles. It has been successfully implemented by having motorists prepay for the kilometres they expect to drive during the policy term and then settling accounts when it ends. If you’re over your prepaid mileage, you pay an additional bill before you can renew your registration. If you’re under, you get money back. Some private insurers use odometer readings verified by digital photos; others get readings confirmed by insurance brokers.
Figuring out the best way to make PAYD work for a monopoly insurer like ICBC will take some testing. ICBC should move on a pilot project to figure out how, not whether, to add distance to the mix of factors determining insurance rates.