Pay-per-mile auto insurance?

Visiting the 100-year-old streetcar suburb of West Philadelphia was such a pleasure last week. It is a paradise of walkability! I arrived quickly and smoothly by streetcar from the train station. Then I truly enjoyed my walk past quirky gardens on wide sidewalks under the leaves of mature plane trees. friendly car free PhillyWalking up the step to my friend’s porch, I could see exactly which of her neighbors were interested in a visit. All the porches of the row houses line up to make one big family room for the block.

Over the next day, we did the following without needing to use a car: took a kid to pre-school, bought milk & ice cream bars, shopped for baby clothes, went downtown to visit a new baby, and met a friend for drinks at the last minute. In fact, I lived in this neighborhood for 6 years without having a car, and I rarely ever missed having one. I did have a Philly Car Share membership, but the marginal cost of using it was so high that I rarely did.

Marginal Cost?

Marginal cost — for those who are rusty on their economics terms — is how much extra it costs every time you do something, like use a car. If I own my car, the only extra cost to using it each time is the cost of whatever gas I use up, and perhaps parking fees. Using carshare is much cheaper than owning a car, but the marginal cost can be higher: about $8/hr.

The thing about marginal costs is that they feel big, and you feel them every time. So they are good disincentives to using something. Unfortunately, this usually plays out in the following way: “Hm, I need to take some books back to the library. I could drive there in 6 minutes and park for free, or I could pay $2.50 to take the bus a few stops. I guess I’ll just drive.” The mode that has the lowest marginal cost tends to win. You’ve already paid the “overhead” for your car, so you might as well use it.

car free PhillySo if we want car owners to drive less, how can we increase the marginal costs for car usage? Higher parking fees can work, and the aggravation and time of being stuck in traffic can be considered another cost. Giving them free transit passes (through their workplaces and schools, for example) also helps. But here’s a new idea — instead of having people pay a flat fee for car insurance, how about charging then a low rate and tacking on a little more every time they drive? They would save money by driving less.

Save by paying for insurance by the mile?

Today I got an online quote from Metromile, a company that is currently offering pay-by-the-mile auto insurance in CA, IL, NJ, OR, PA, VA and WA. Their ad suggested it might be a good deal if you drive less than 10K miles per year. We’ve had our car almost 7 years and have 56,867 miles on it, so I thought it might work for us.

The quote I got was a base rate of $42.47/mo. plus 6.2 cents per mile driven. They measure miles driven with a little device you plug into your car and charge you for actual miles driven each month.

As it turns out, we drive about 650 miles per month on average, which is a bit shocking, really. But we’d have to reduce that to under 400 mi./mo. to save $60/yr. If we got to less than 200 mi./mo., we’d save $200/yr. It seems we’re not as urban or green as we think, or maybe it’s the fact that we share a car instead of having two cars with fewer miles on each. Anyhow, it seems we have work to do.metromile car insurance

The Mileage Reduction Goal

Good for Metromile for making such a smart business model that incentivizes greener behavior while making a profit. Part of me wants to become their customer just to support what they’re doing, but I’m going to hold off for now. For people who truly drive less, like my friends in West Philadelphia, I think Metromile would be great. For us — a couple sharing one car in an area that is “somewhat walkable” — we need to find ways to further reduce our driving before it makes sense.

So here’s my goal for our nuclear family – drive less than 500 miles in August. Then reduce from there. Time to get a basket for my bike, and buy a transit pass!

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