Insurance by the Mile: A Simple Way to Slow Global Warming?

In an article published today in Harper's Magazine, Dean Baker suggests having car owners insure their vehicles per mile driven. He thinks paying as you go, rather than a fixed cost per year will change the way people think about driving a car and thus alter their behavior. Dean Baker explains:

"[...] But there is one thing we could do now that would change how people consume gasoline. We could switch from the current way in which people pay for auto insurance to a pay-by-the-mile system. Such a switch might reduce annual gasoline consumption by as much as 10 percent, without raising the cost of insurance for an average driver. The key is to change the way that people view the cost of driving their car. "

He continues to explain the dollars and cents:

"This would change if drivers paid for insurance by the mile. Taking rough numbers, the average person drives her car around 10,000 miles a year and pays a bit less than $1,000 each year for insurance. This means that the cost of insurance is approximately 10 cents per mile. If for each mile they drive drivers paid 10 cents for insurance, then on average they would pay the same amount for insurance as they do now—but they would have much more incentive to cut back their driving.

So, for instance, a driver who was considering carpooling to avoid a 40-mile roundtrip commute to work could save herself $4 a day (more than $800 a year) in insurance costs by carpooling under the pay-by-the-mile system. Many trips that make sense under the current insurance payment system would not make sense with a pay-by-the-mile system. It would discourage driving in the same way that a large gas tax would discourage driving, except that—on average—no one will pay more for insurance."

I'd be interested in your comments on this idea.

Insurance by the Mile [Harper's Magazine, June 2006]