MileMeter Blog

I am a guest speaker at the insurance conference "Kraftfahrt 2008 - Strategien in einem heiß umkämpften Markt" (Automobiles in 2008 - Strategies in a highly competitive market), hosted by the German actuarial firm Meyerthole Radtke u. Siems. I will present "How distance-based auto insurance benefits customers, shareholders, policymakers, and the environment" on the morning of March 6th.

While in Köln, I am available to meet with representatives from interested European insurance and reinsurance companies. Please telephone +1 214 840 5306 or email to schedule a meeting. I will be in Köln during 4-7 March.

For conference reservation information, please see the conference brochure.

During the get-out-the-vote effort for MileMeter in the AWS Startup Challenge, we asked the Oregon Environmental Council for assistance.

Why would we ask an environmental organization to help an insurance company? Because the OEC supports distance-based insurance for its potential to reduce greenhouse gas emissions, lessen toxic road runoff, and lower our collective demand for new road infrastructure. In 2003, the OEC campaigned in Oregon to create a state tax incentive for distance-based auto insurance. Due to the efforts of the OEC and its membership, thousands of signatures were collected and House Bill 2043 was signed into law. The law provides a $100 per policy state tax credit to insurers offering distance-based auto insurance in Oregon.

On 5 December 2007, the Oregon Environmental Council graciously assisted us on short notice, and sent an email to interested persons. I would like to personally and publicly thank the OEC for their assistance. As a result of the OEC advocacy, we received considerable support from the Pacific Northwest region. Thank you, OEC! Their email advocating a vote for MileMeter concluded with:

"Learn more about pay-as-you-drive insurance at http://www.oeconline.org/climate/payd/. This is a huge chance to jumpstart PAYD insurance in the U.S. Please join me in casting a vote at Amazon.com."

This begs the question, "How can insurance reduce our environmental impact?"

How MileMeter insurance can reduce our environmental impact

Every mile driven in a vehicle has an incremental cost. Some of these costs, such as fuel, are born by the vehicle owner/operator. Other costs, such as road wear-and-tear and vehicle emissions, are born by society.

MileMeter will reduce our environmental impact as a society by avoiding some vehicle emissions and lessing our impact upon the land itself.

By providing insurance on a cents-per-mile basis, MileMeter makes 2 key changes to the incremental cost structure of operating a vehicle. First, it makes auto insurance an incremental cost rather than a fixed cost. If you choose to drive less, you will pay less for auto insurance. Second, the incremental cost structure of MileMeter insurance creates a financial incentive to reduce the miles you drive. By driving less, we reduce the incremental vehicle operation costs borne by society. In practical terms this means less taxation for road maintenance and construction, less transportation congestion, less demand for parking lots, fewer traffic injuries, and fewer tailpipe emissions (NOx and VOCs) -- hence the interest from policy makers, transportation planners, and environmentalists.

Reduce Emissions

As a small exercise to illustrate the power of a financial product to influence behavior, assume that the whole nation begins using distance-based insurance. One study that made such an assumption estimated our energy consumption would drop by 8.7%, polluting vehicle emissions by 9.6%, and vehicle miles travelled (VMT) by 11% [3]. Using the latter statistics and crudely applying them to some current U.S. transportation statistics, I arrived at the following table. Please note that this is only a rough estimate -- not a refined emissions and transportation model.

2005 Vehicle Miles Travelled by Passenger Cars [1]	1,689,965,000,000
Emissions for Light-duty Vehicles, in Grams per Mile [2]
Exhaust HC	0.52
Nonexhaust HC	0.72
Exhaust CO	12.57
Exhaust NOx	0.92
U.S. VMT Reduction with Distance-based Insurance [3]	11%
Fewer Miles Driven	185,896,150,000
U.S. Emissions Averted Annually, in Grams	2,738,250,289,500
U.S. Emissions Averted Annually, in Metric Tons	2,738,250

To those of you who prefer to reduce a decision to dollars and cents, we'll roughly convert the averted emissions into an economic value. Using a more refined model produced by the Victoria Transport Policy Institute, the cost to society due to emissions per mile traveled by a light duty vehicle is $0.039 per mile [4]. By reducing annual miles driven by 185,896,150,000 miles in our nation through the use of distance-based auto insurance, we can theoretically avoid a national financial expense of $7.2 billion ($0.039 * 185,896,150,000). While the calculations are rough, this should make the point clearly.

Reduce Land Use Impacts

When we drive less we reduce our demand for new roads and new parking lots. If, as a nation, we reduce our driving by 186 billion miles annually that greatly reduces our demand for new road and parking construction. The average car is estimated to impose a land use impact cost of $0.056 per VMT [5], which equates to a financial cost to society of $10.4 billion for the aforementioned 186 billion miles.

Indirectly, distance-based insurance encourages land use and development that caters to moderated personal driving habits. Stated differently, distance-based insurance is a financial dis-incentive to suburban "sprawl". Distance-based insurance can be part of a larger set of policy tools to encourage more appropriate land uses and sustainable development.

Conclusion

When we drive less, we reduce our environmental "footprint". It is that simple. Just by using distance-based auto insurance, the nation could lessen the annual vehicle emissions (aka "smog") by over 2 million metric tons and reduce our demand for new roads and parking lots. Distance-based insurance will help us reduce greenhouse gases by lowering aggregate vehicle emissions, and encourage more sustainable land uses by more accurately allocating the costs of vehicle ownership and operation. With a financial incentive for a product most Americans are obligated to purchase, we can reduce global warming and lessen our environmental impact. Distance-based insurance is a tool for both good fiscal policy and environmental stewardship.

Sources:
[1] U.S. Department of Transportation, Research and Innovative Technology Administration, Bureau of Transportation Statistics. National Transportation Statistics as of 04/12/2007, Table 1-32: U.S. Vehicle-Miles, "Passenger car" data for the year 2005.
[2] U.S. Department of Transportation, Research and Innovative Technology Administration, Bureau of Transportation Statistics. National Transportation Statistics as of 04/12/2007, Table 4-38: Estimated National Average Vehicle Emissions Rates per Vehicle by Vehicle Type using Gasoline and Diesel, "Light-duty vehicles" data for the year 2005.
[3] Todd Litman and Charles Komanoff and Douglas Howell. Road Relief: Tax and Pricing Shifts for a Fairer, Cleaner, and Less Congested Transportation System in Washington State, page 22, 1998.
[4] Victoria Transport Policy Institute. Transportation Cost and Benefit Analysis - Air Pollution Costs. See page 5.10-9 for the estimated vehicle air pollution costs.
[5] Victoria Transport Policy Institute. Transportation Cost and Benefit Analysis - Land Use Impacts. See page 5.14-22 for the estimated land use impact costs.

While we were in Seattle for the AWS Startup Challenge, my wife and I indulged in the offerings of the city: the ability to walk to everything you need, and excellent food. The former allows you to enjoy more of the latter.

For dinner we walked north and had the good fortune to find Marjorie while walking in the Belltown section of downtown. I heartily recommend it. The restaurant has approximately 10 tables, and is has the inviting ambiance of a bistro with the cuisine of a haute restaurant. We enjoyed conversations with two of the adjoining tables, the service was engaging and subtle, and the food and drinks excellent. Make time for it if you're ever in Seattle.
Our menu for the evening was started with a fresh margarita (better than any I've had in Texas) and an appetizer of italian bean soup with organic ham. For the main course we selected the market fish (yellow-fin tuna), and the grilled tri-tip steak with potato-celeriac gratin, escarole, and roasted grapes. To conclude the evening we selected the brioche bread pudding with bourbon caramel sauce and "pure chocolate" (bittersweet) desserts, capped with a refreshing dessert wine: Beeren Auslese (Deinhard, Germany, 2002). All of the meal was outstanding, and worthy of many repeat visits.

The next morning we walked over to the Belle Epicurean Bakery at 4th and Seneca. They heat the pastries for serving in a dry oven to provide the perfect texture and warmth. You can also perch yourself in one of the storefront windows while sipping the coffee or fresh-squeezed orange juice. We enjoyed a pumpkin & sweet potato brioche, and a croissant with some fresh coffee and juice. I grew up with pastries in Europe, and this is the first U.S. bakery that survived the comparisons -- the pastries are sublime.
Don't miss this bakery.

I would like to personally and publicly thank the National Organization for Women for their support of MileMeter. NOW generously sent an alert to their membership on 3 December 2007 urging a vote for MileMeter in the AWS Startup Challenge. As a result, MileMeter received a surge of votes and interest which led to excellent opportunities for MileMeter. Thank you, NOW! An excerpt from the alert reads:

"We need your vote today in an Amazon contest! We're happy to report that MileMeter, a per-mile auto insurance company which NOW's Insurance Project has been mentoring, is a finalist (over 900 applicants) in Amazon Web Service's Start-Up Challenge. Why NOW's support? Because charging for insurance in this way is non-sexist, helps the environment, and helps enable lower-income people to retain their cars. In a word, it's fair."

The NOW alert created a dialogue on the ability of a financial product to impact social equity. For instance, when I arrived at the Amazon.com offices for the contest, one of the first questions I was asked was, "How is MileMeter insurance non-sexist?"

How MileMeter insurance is non-sexist

Although it is possible to have a vehicle accident while your car is parked, it is uncommon (e.g. you have Collision coverage on your vehicle, parked it on the curb, and someone clipped your vehicle. As a result of which your insurer pays a claim to you based upon your Collision coverage). In general, your risk of getting into an accident is highly correlated with driving. When all other actuarial criteria are held constant (age, location, vehicle, etc), vehicle accident frequency has an almost linear correlation with vehicle miles traveled.

When you drive you are exposed to hazardous road conditions and unskilled and distracted drivers. For every mile you drive, you are at risk. For every mile you drive, you are more likely to be involved in an accident (irrespective of who caused the accident), and thus file a claim with your insurer.

Since women -- on average and as a national group -- drive less than men, women are less likely to be involved in accidents that cause their insurers to pay claims. Traditional term insurance generally does not account for the difference in vehicle miles traveled (VMT) by women, so women overpay for insurance coverage. By pricing insurance by the mile, MileMeter therefore more accurately assigns a cost to any driver (male or female) for the risks they incur as a driver.

MileMeter does not discriminate between male and female drivers, rather we "discriminate" between low- and high-mileage drivers by assigning a cost-per-mile for insurance. If MileMeter quotes a price of 3 cents per mile, a low-mileage customer might purchase 3,000 miles of coverage from us for $90 ($0.03 * 3000) whereas a higher-mileage customer might want 6,000 miles of coverage for $180 ($0.03 * 6000). Lower-mileage drivers -- relative to the average -- thus have a financial incentive to drive less and should experience insurance cost savings relative to traditional auto insurance plans. Drivers who drive less than the average per vehicle per year (nationally, this is approximately 12,000 miles per vehicle per year) should experience financial savings with per-mile auto insurance.

For more information on how cents-per-mile insurance impacts social equity, I recommend reading the articles posted on the Cents Per Mile Now project website. Cents Per Mile Now is sponsored by the National Organization for Women, and has been instrumental in advocating and supporting distance-based auto insurance.

Out of over 900 companies, MileMeter was selected as one of the 7 national finalists for the Amazon Web Services Startup Challenge. We will offer "auto insurance buy the mile", so people who drive less pay less for insurance. Customers will buy miles in advance and renew as needed - without vehicle tracking devices. With MileMeter's insurance by the mile, you only pay for the insurance you need. By rewarding reduced driving with lower insurance costs, insurance by the mile has the potential to reduce our environmental impact and to make insurance fair, accurate and affordable. We'll tell you more about that in a later posting.

For each finalist, a 2 minute film was produced by Snippies. We're very pleased by the results, and you can watch the video below.

We'd like to especially thank the folks who made the video so engaging and professional: Jeff Fellows, a friend with video experience who helped us avoid all manner of first-timer mistakes like wearing a striped shirt or switching one's visual focus between the camera and the interviewer; Laura Inserra, producer; Leslie Frances, video journalist; and the rest of the Snippies and AWS teams.