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Make Car Insurance Fairer
Forbes ^ | 03.17.03 | Ian Ayres and Barry Nalebuff

Posted on 03/05/2003 8:12:53 PM PST by wallcrawlr

Wouldn't it be a great idea if the oil companies offered all-you-can-drive gasoline? For one fixed price, you could drive as much as you wanted. Of course, this is ludicrous. It would be massively unfair. It would create terrible incentives. Yet this is how auto insurance is sold. Some insurers offer a 15% discount if you drive less than 7,500 miles a year. But beyond this distance the price is fixed. People who drive 10,000 or 100,000 miles pay exactly the same premium.

Econ 101 says that when something is free, people consume too much. In this case, all-you-can-drive insurance encourages people to drive more than they otherwise would if they had to pay the full cost of each mile. The heavy drivers don't bear the total costs related to their actions--hospital bills, body shop bills, highway congestion.

Low-mileage drivers (e.g., women, who drive half as much as men) get a raw deal. Fixed-price insurance hurts Detroit, too. More people would choose to have second and third cars--maybe a ragtop for weekends?--if the extra insurance weren't so expensive.

So what should be done? Simple. Charge drivers for insurance on a per-mile basis. That does not mean higher average insurance rates. It does mean that the low-mileage drivers would stop subsidizing the high-mileage drivers. If the per-mile fee reflected the incremental risk, Berkeley professor Aaron Edlin calculates that driving would be cut back by 9%, with an insurance savings of $8 billion a year and an additional $9 billion savings in reduced congestion. Not to mention the environmental benefits of reduced fuel consumption.

Proposals for implementing usage-sensitive rates go way back. In 1963 Nobel Prize-winning economist William Vickrey suggested that insurance be included in the purchase of tires. Anticipating the objection that this might lead people to drive on bald tires, Vickrey said drivers should get credit for the remaining tread when they turn in a tire.

Andrew Tobias proposed a variation on this scheme in which insurance would be included in the price of gasoline. That would have the added benefit of solving the problem of uninsured motorists (roughly 28% of California drivers). As Tobias points out, you can drive a car without insurance, but you can't drive it without gasoline.

In Vickrey's time, turning back odometers was, perhaps, too easy. With digital electronics, rolling back the odometer is much harder. It is also illegal. Odometer readings are good enough for car leasing--why not for car insurance?

Alternatively, an insurer could monitor distances driven using the Global Positioning System. As this magazine noted earlier (Nov. 27, 2000), Progressive Corp. had a pilot insurance program using this technology.

GPS could slice the risk equation more finely. Highway mileage could be given a discount, and nighttime driving could be charged a premium. Speeding could also lead to higher premiums. To put a positive spin on it: You safe drivers would get the discounts you deserve.

Why has the insurance industry been so cool to mileage-based pricing? An established insurer might be reluctant to adopt it because it would lead to higher rates for half of its customers, and that half would be angrier than the other half would be pleased. Pay-per-mile insurance makes the most sense to a company that is trying to grow and to attract more women customers.

Another stumbling block is that some states make it very difficult for insurers to provide this product. Patrick Butler has been working for some 20 years to get the law changed to bring per-mile insurance to the marketplace. With the support of the National Organization for Women, he has drafted model legislation to allow firms to offer per-mile insurance.

In January 2002 Texas became the first state to explicitly permit per-mile insurance. There is mileage-based insurance legislation pending in both Oregon and Georgia.

In the U.K., Norwich Union, a major auto insurer, has already rolled out a similar plan. Early indications suggest that customers who drive less than the norm are saving, on average, 25%.


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To: wallcrawlr
Besides being a bad plan, anyone else notice all the fascist - control freak statements in this article? GPS measuring when and where you are driving and charging you based on that?

Next, they'll want to monitor your home water usage and charge you based on hot vs. cold, well vs city provided, soft vs hard, filter vs non filtered, outside usage vs potable. Sheesh.

How about a monitor that meaures your caloric intake and you can be administered (a nice fascist word) chits to redeem for your food based upon your health and needs. THis way they can force health on us. Pleas don't forward this to the Big Food class action lawyers.
161 posted on 07/30/2003 1:30:29 PM PDT by tang-soo
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To: dogbyte12
The minute we start empowering the government to dictate to insurance business "what we'd like to see", we can be sure we're not going to get what we want. We will get higher rates, more bureaucracy, and the 28% uninsured will remain uninsured because it's racist or contrary to Party interests to ask them to get insurance. Why can't people leave business well enough alone? The only reform we need is to stop issuing licenses, registrations, renewals and titles without proof of insurance. As usual, government fails entirely to enforce the laws it has, and tells a bunch of lies to get us to pass new laws.
162 posted on 07/30/2003 1:33:46 PM PDT by Iconoclast2
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To: discostu
"Wonder why you couldn't do that months ago"

I did. See post #124, dated 3/3/2003; where I provided this same link.

Why would you not accept it then?

163 posted on 07/30/2003 1:36:39 PM PDT by laotzu
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To: discostu
"Oh that's right you were being a dork."

Was I really?

164 posted on 07/30/2003 1:41:04 PM PDT by laotzu
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To: laotzu
Yes, and you're trying again now. You're the one that admitted to deliberately withholding information to "teach me a lesson". Well the lesson was taught then and is obviously still valid today: laotzu is a dork and should be avoided. Go away now, I'm sick of your crap again already.
165 posted on 07/30/2003 1:43:15 PM PDT by discostu (the train that won't stop going, no way to slow down)
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To: discostu
"Wonder why you couldn't do that months ago"

I did. See post #124, dated 3/3/2003; where I provided this same link.

Why would you not accept it then?

"Oh that's right you were being a dork..Guess that not only makes you (laotzu) a liar, it makes you a f-cking pig and a total g-ddamn jackass....F-CK OFF....You're a g-ddamn piece of sh-t f-cking lieing bastard....You f-cking insulted me....F-ck you damn c-cksucking f-ckface....a simple f-cking question....at DU with the other f-cking morons....a meely mouthed sh-t eating c- msucker....F-CK OFF....shove a garden weasel up your lieing blown out f-g ass"

You have such a poetic mastery of the language. Even as a dork, I can pick up on it. You're my hero.

166 posted on 07/30/2003 1:49:27 PM PDT by laotzu
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To: laotzu
Is there a particular reason you feel a desperate need to resurrect this fight? I already admitted you're right. Go away.
167 posted on 07/30/2003 1:50:46 PM PDT by discostu (the train that won't stop going, no way to slow down)
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To: rollin
Drivers who don't drive many miles have a greater number of accidents per mile traveled

While I agree with the premise, but you should refine the argument. If one were to start plugging in numbers, it could end up either way.

(Just a hint, not the start of a debate ;-)

168 posted on 07/30/2003 1:50:51 PM PDT by StriperSniper (Make South Korea an island)
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To: discostu
"you finally did it"

I repeated the truth I told you of months ago.

You called me a liar, a dork, a f-cking pig and a total g-ddamn jackass...a g-ddamn piece of sh-t f-cking lieing bastard.... and a meely mouthed sh-t eating c- msucker.

It is now clear to you that I told the truth.

You owe me an apology.
(another tirade as quoted above would be welcomed as well)

169 posted on 07/30/2003 2:01:51 PM PDT by laotzu
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To: laotzu
You also admitted to deliberately withholding information and presenting red herring data. I'm not apologizing to you. Had you presented your good data FIRST instead of after prolonging the argument for weeks it would have been over. But no. You wanted an argument so you deliberately put forth useless data. I'll never apologize for being lied to and manipulated.
170 posted on 07/30/2003 2:05:31 PM PDT by discostu (the train that won't stop going, no way to slow down)
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To: discostu
"you feel a desperate need to resurrect this fight?"

I only answered the man's question. Nothing more.

You hurled "dork". Why?

171 posted on 07/30/2003 2:06:03 PM PDT by laotzu
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To: laotzu
Post 135 is why you're a dork. Now really. We're done. Don't reply, I won't read. And please, die in horrible pain, it's what you deserve.
172 posted on 07/30/2003 2:15:08 PM PDT by discostu (the train that won't stop going, no way to slow down)
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To: discostu
"you deliberately put forth useless data"

Just as you have done today, in post #155. You knowingly gave wasp69 false information regarding his question. Why?

Obviously, I was correct about self-insurance, and; you aren't really all that upset about passing misleading information as you pretended.

I've done nothing to warrant the cussing out you gave me, nor the insult you chose to start up again today. Yet you eagerly spew them. Why?

Your loudness, ludeness, and rudeness are meant to disguise both ignorance & stupidity. Keeping with your own company, it would work.

FreeRepublic is a market where adults will be encountered. A modicum of silence, awe, and honor are far more in order; and would benefit you greatly.

A woman should always be silent, servile, & appreciative. Be so.

173 posted on 07/30/2003 2:28:23 PM PDT by laotzu
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To: discostu
Tell me about it, one of my cars broke and I didn't have the time,money or inclination to fix it so I stuck it in my garage, canceled the insurance, (why pay insurance on a car not on the road?) and drove my truck for a while, fully insured by the way,when I fixed my car and went to re-register it, they told me that I needed an SR-22 to re- register my car, fully insured of course, I got no notification of suspension until I went to the DMV. Since when is any business of theirs if my car is not insurred if I am not driving it. I am so P.O.ed I am seriosly thinking of moving to another state for a month to register my vehicles. Bastages. /rant Dont you just love AZ
174 posted on 07/30/2003 2:31:54 PM PDT by thrcanbonly1 ("I like sunsets on on the beach, long walks and belt-fed weapons.")
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To: discostu
"die in horrible pain, it's what you deserve"

Gee, and I like you.

That's a keeper; one for my homepage. Thanks. You're the best.

175 posted on 07/30/2003 2:32:04 PM PDT by laotzu
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To: discostu
"Don't reply, I won't read"

I've heard that lie before.
(I know how much lies upset you)

176 posted on 07/30/2003 2:35:06 PM PDT by laotzu
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To: thrcanbonly1
There's a form you're supposed to fill out with the DMV saying your car is out of commission for an extended period but not dead completely. Nobody ever does, it's like a running joke with those people.
177 posted on 07/30/2003 2:35:12 PM PDT by discostu (the train that won't stop going, no way to slow down)
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To: discostu
"I already admitted you're right"

You owe me an apology

178 posted on 07/30/2003 2:43:24 PM PDT by laotzu
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To: discostu
I am suprized they dont have metal detectors at the DMV, they are going to need them
179 posted on 07/30/2003 2:54:28 PM PDT by thrcanbonly1 ("I like sunsets on on the beach, long walks and belt-fed weapons.")
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To: thrcanbonly1
I think they rely on sapping your will to live.

Actually I shouldn't complain too much, ADOT has done an excellent job of streamlining the process, as long as you don't have anything wierd going you can be in and out in 10 minutes, if you even need to go in, a lot of stuff can be done on the web. Of course if you've got something wierd going... bring lunch.
180 posted on 07/30/2003 2:57:54 PM PDT by discostu (the train that won't stop going, no way to slow down)
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