A significant portion of vehicle expenses are fixed, and therefore not marginal. This is economically inefficient and results in excessive automobile travel. Insurance premiums are particularly appropriate for converting to distance-based charges. Newly available data indicate that distance-based insurance pricing is more actuarially accurate, and therefore more equitable and economically efficient than current pricing. Distance-based insurance provides specific benefits including reduced accidents, traffic congestion, and pollution, facility cost savings, insurance affordability, and increased consumer welfare. Vehicle travel foregone consists of low-value trips that consumers willingly give up in exchange for financial savings. This paper evaluates different distance-based insurance pricing options. Per-Mile Premiums is found to provide the greatest net benefits. It would use “odometer audits” to provide accurate mileage data, which is estimated to have incremental costs averaging $7.50 per vehicle year. Total benefits are predicted to be many times greater than costs. (A)
Abstract