Can car insurance curb emissions?

Mileage-based insurance could cut vehicle miles by 8 percent, according to one report. Photo credit: Minesweeper

A new type of auto insurance in California could help the state meet its greenhouse gas reduction targets while cutting costs for individual drivers.

Starting next week, State Farm Insurance customers in California will be able to tap into a program that would allow them to pay lower insurance rates for driving fewer miles. 

Called the Drive Safe and Save Program, the plan would give policyholders an initial five percent discount on their insurance rates for agreeing to report their mileage – or for allowing State Farm to track their miles through an on-board monitoring system. Drivers could then increase their savings by cutting more miles. Another agency, the Automobile Club of Southern California, started offering its customers a pay-as-you-drive option earlier this month, as well.

"The voluntary pay-as-you-drive initiative is an innovative program that will allow insurers to offer plans based on more accurate mileage, so that people who choose to drive less will pay less for auto insurance," Stephen Poizner, the state’s former insurance commissioner, said in a statement in December when he approved the programs.

While many insurers offer low-milage programs that give lower rates drivers who log less than a certain number of miles per year, the new program allows insurers to break drivers down into more precise mileage groups by requiring tighter tracking and reporting of milage. For example, someone who logged 10,000 miles per year would save about 10 percent on their premiums, while someone who drove 3,500 miles annually could save almost 40 percent, according to State Farm's estimates.  

With about $2.5 billion worth of insurance premiums and more in California, State Farm estimates the program could save California drivers more than $30 million.

But besides saving money, the program could make a small dent in the state’s greenhouse gas emissions. A 2008 report from the Brookings Institution found that pay-as-you-drive insurance in California would cut miles driven by eight percent and could reduce carbon emissions enough to meet about eight percent of the state’s emission-reduction goals by 2020.

A 2008 California law aiming to reduce passenger vehicle use calls for the state’s metropolitan areas to reduce emissions from driving by 15 percent by 2035. While better transit options and smarter development are also essential to helping the state meet its goal, creating financial incentives could go a long way toward getting people out of their cars.

Pricing tools like higher fuel taxes and road use charges are among the best ways to curb driving, according to a report released in February by the Public Policy Institute of California, which assessed the state’s progress in meeting its emission-reduction goals.

The Golden State isn’t among the first to okay pay-as-you-drive insurance: About 30 other states allow mileage-based insurance.