Insurance by the mile.

Byline: The Register-Guard

Environmentalists have high hopes for a concept called pay-as-you-drive auto insurance. They must have been surprised when the Republican-led Oregon House of Representatives, where tinges of green are almost as rare as money for new programs, voted 41-16 to test cents-per-mile auto insurance premiums. The Senate should follow suit - but the easy acceptance of House Bill 2043 suggests there's less here than meets the eye.

HB 2043 would establish a pilot program under which auto insurance companies would receive a one-time $100 tax credit for each policy featuring premiums based on mileage. The idea is simple: All else equal, a driver who puts 10,000 miles on her car would pay twice as much for insurance as her neighbor who drives only 5,000 miles.

It's notable that the cash-strapped House would agree to hand out tax credits for any purpose, but HB 2043 is modest in scope. The tax credits would not be available until mid-2005; the bill wouldn't cost the state's general fund anything during the next two-year budget period. The cost of the credits is capped at $1 million over the first five years. In 2005-07 the tax credits would cost the state an estimated $360,000 - enough to provide pay-as-you-drive insurance tax credits for 3,600 vehicles. That's less than 0.1 percent of the 3.8 million vehicles currently registered in Oregon.

The Oregon Environmental Council, at whose request HB 2043 was introduced, sees mileage-based rates as one way to encourage people to drive less. Auto insurance is a major component of the cost of owning a car or truck, but once the vehicle is insured the premium stays the same no matter how many miles it's driven. If people could save on their insurance by driving less, the council believes, they might take fewer unnecessary trips, walk, ride a bike or take the bus.

Even if the program created by HB 2043 were larger, however, its effect would probably be marginal. Pay-as-you-drive insurance would already exist if there were a market for it, or if insurance companies determined that the number of miles a policyholder drives is a significant risk factor. The fact that tax credits are required to call mileage-based insurance pricing into being is not a good sign.

Auto insurance companies do make a crude attempt to quantify mileage - if a policyholder lives more than a certain distance from her place of employment, for instance, the rate goes up. But insurers are not eager to begin verifying mileage by checking people's odometers. Relying on an honor system, under which policyholders would report their own mileage, would invite inaccuracies or outright cheating, which would undercut the reliability of mileage as a risk factor in setting rates.

The tax credit may induce some auto insurance companies to overcome the problem of tracking policyholders' mileage. But other risk factors - the driver's age, gender, driving record and so on - will continue to influence policyholders' rates. The Oregon Environmental Council expects that pay-as-you-drive insurance will benefit low-income people and the elderly, who often drive less and would qualify for lower insurance rates. The discount for low-mileage drivers, however, may not be as substantial as HB 2043's supporters hope.

The idea of pricing insurance by the mile deserves a try. If it works, it will provide drivers with an incentive to reduce traffic congestion and pollution while also encouraging insurance companies to fine-tune their practices. But neither the insurance industry nor the transportation system are likely to be dramatically changed by pay-as-you-drive insurance. That's probably why HB 2043 passed the House so easily. Members understood they were incurring a minor obligation far enough in the future to be of little concern, without forcing insurers or drivers to change their ways.