Distance-based vehicle insurance as a TDM strategy

Insurance is the second largest motor vehicle expense. It is usually perceived as a fixed cost with respect to vehicle travel. A reduction in driving provides vehicle owners with little or no insurance cost savings, despite the fact that vehicle collisions and insurance claims decline with reduced vehicle travel. Current insurance pricing causes insurance payments on lower-mileage vehicles to subsidize accident costs of higher-mileage drivers in the same risk class. Changing insurance pricing to make it distance-based could improve both economic efficiency and equity. This article discusses the concept of distance-based private motor vehicle insurance. It describes three distance-based insurance pricing options, compares their costs and benefits, and explores barriers to implementing them. Mileage-pricing is recommended as the most effective, equitable, and cost-effective option. It would reduce total automobile travel by an estimated 5% to 15%, making it among the most effective of transportation demand management measures currently proposed.