SPUR’s report Critical Cooling recommends 42 options for reducing local carbon emissions. This is one of them. To learn about all 42 ideas, read the full report

Expand Pay-As-You-Drive Insurance

One of 42 options for reducing local carbon emissions, from our report Critical Cooling

Urbanist Article
Annual savings potential:
Annual public cost:
Public cost per ton:
Implementing agency:
Horizon year:
100,000 - 1.07 million tons
Revenue neutral
California State Insurance Commission


  • PAYD insurance reduces VMT by an average of 8 percent
  • Estimated range of potential impact reflects the possibility of moving between 10 percent and 100 percent of drivers to PAYD insurance
  • If mileage checks are added to required state emissions inspections, PAYD insurance can be implemented without significant monitoring costs
  • Estimated reductions are regional


“Pay as you drive” insurance saves drivers money and rewards lower-mileage driving, reducing the overall vehicle miles traveled. Currently, state regulatory obstacles prevent widespread adopting of PAYD insurance.

What we do now
Currently, motorists pay for auto insurance in a lump sum. While insurance companies attempt to price risk for different groups of drivers, the amount of driving is not a major factor in the price most drivers pay for insurance. This method of payment is disadvantageous to low-mileage drivers.

What we could do
Insurance priced on a per-mile basis would serve to create an incentive for lower rates of driving. An analysis conducted by the Brookings Institution estimates that this method of pricing could decrease VMT by up to 8 percent nationwide.1 The authors also estimate that the typical household would save $270 per car on insurance costs. Currently, California law makes it difficult to offer PAYD insurance. Changes to state law could either permit PAYD, or require it.

If offering PAYD insurance is voluntary, monitoring costs do present an obstacle to its adoption. Because monitoring costs would exceed the benefits to insurance firms, the Brookings analysis proposes offering tax incentives to insurance firms to enroll drivers in this type of policy. Monitoring could be accomplished either by having mileage checked at the emissions inspections already required by state law, or by installing mileage monitoring devices in vehicles.

There would likely be some additional monitoring costs for insurance companies offering PAYD insurance. The Brookings analysis proposes that a $100 tax credit per enrollee would be sufficient to induce companies to voluntarily offer this type of policy. However, if mileage checks were added to required California state emissions inspections, monitoring could be accomplished at essentially no additional cost.

Carbon savings potential
Bay Area VMT will be an estimated 105 million VMT per day by 2015. If all drivers in the region could be moved to PAYD insurance, and the policy achieved an 8 percent VMT reduction, the net change in regional driving would be 8.4 million VMT per day, or 3.02 billion VMT per year. The reduction in CO2 emissions would be 1.07 million metric tons per year. Because the most feasible changes to state insurance regulations are ones that permit, but do not explicitly require, PAYD insurance, it is more likely that some but not all drivers could be moved to such policies. If just 10 percent of drivers in the region could be converted to PAYD insurance, the expected impact would still be more than 100,000 metric tons per year.

1 Pay-As-You-Drive Auto Insurance: A Simple Way to Reduce Driving-Related Harms and Increase Equity. Jason E. Bordoff Pascal J. Noel. The Brookings Institution. Discussion Paper, July 2008.