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More States Eye PAYD as Green Incentive

Auto insurance companies have long known that fewer miles in a car translate into fewer opportunities for car accidents, and have offered drivers premiums scaled to their miles behind the wheel. Now, states eager to reduce their greenhouse gas emissions are exploring ways to apply similar pay-as-you-drive logic.

Only weeks after California insurance regulators approved the state’s first two PAYD programs, officials in Massachusetts and New York City announced that they are eyeing PAYD initiatives as a way to reduce traffic congestion and pollution, according to Online Auto Insurance.

In California, State Farm Mutual Automobile Insurance and Auto Club of Southern California can offer voluntary auto insurance programs that cut premiums for consumers who verify a reduction in miles driven, according to assembly member Jared Huffman. Drivers would have to provide a verified reading of their mileage rather than supplying an estimated value.

A PAYD pilot plan is included in the Massachusetts Department of Energy and Environmental Affairs “Clean Energy and Climate Plan for 2020.” The report, released last week, estimates that a statewide PAYD system could result in a reduction in vehicle miles traveled that could range from 2 percent to 9.5 percent.

Lawmakers estimated that a PAYD system would result in saving to two-thirds of drivers and are looking into a voluntary as well as mandatory option that puts the entire insurance charge into a per-mile system. “A middle option, with a mandatory system that has a flat charge for the first 2,000 miles and a per-mile charge beyond that, would yield about 1.0 million tons GHG reduction in 2020, from a 5 percent reduction in vehicle miles traveled,” according to the state’s report.

PAYD is not a new concept for auto insurers. 2005 data from Progressive showed that motorists who logged 5,000 miles a year had about half the number of bodily injury claims and less than half the number of property damage claims as those who logged 30,000 miles a year, according to onlineautoinsurance.

Green insurance options have been expanding since Fireman’s Fund launched the first replacement-upgrade product for hybrid cars. Travelers offers up to a 10 percent premium discount for hybrid-electric boats and yachts.

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