Looking towards the future of pay-per-mile underwriting

May 4, 2022 / 4 min read

When applying for car insurance, drivers are often asked to estimate their annual or weekly mileage. But drivers are often not the best assessors of how many miles they typically drive.¹ Underreported mileage is an industry-wide problem—and it’s one that can cost insurers billions.²

The growth of connected cars is creating new ways for insurers to measure driving behavior and mileage.

But with pay-per-mile insurance and telematics becoming more widely available, estimating mileage may not be around for long.

Staying home, driving less

Some of the American workforce has begun to work from home, while others are only commuting into the office a few days a week, and many now rely on food deliveries instead of getting groceries themselves. Some research also shows that millennials and younger Americans tend to drive less than older populations.³ Whatever the reason, these people are part of a wide swathe of Americans whose driving habits have changed, and they want their auto insurance prices to change with it.^4,5,6

How pay-per-mile insurance is typically rated

Like traditional auto insurance, pricing for pay-per-mile insurance often begins with a base rate, based on risk factors like driving history, age, and location. Then, a few cents per mile driven are typically added. So, hypothetically, if you drive 5,000 miles a year at a rate of seven cents per mile, you would pay the base rate plus $350 for the year. If they were to drive 10,000 miles a year, again charging seven cents per mile, the additional charge would be $700.

The next generation of pay-per-mile

The odometer has long been the standard for verifying mileage. Dealership service centers, repair shops, collision centers, DMVs, smog check stations, and other facilities log odometer readings that are aggregated into databases and made available to the property/casualty industry. In some cases, odometer photos from policyholders may be used by insurers to verify mileage. But odometers can only track miles over time.

The growth of connected cars is creating new ways for insurers to measure driving behavior and mileage, and reward less risky policyholders with lower rates.

With telematics devices, everything from speed and braking to driving patterns and time of day–in addition to mileage–can all help insurers better assess driver risk and set prices.⁷ In the future, as pay-per-mile is enhanced with telematics, insurers, equipped with data from consenting drivers, may consider these factors when underwriting pay-per-mile:

Time of day: With this information, insurers can analyze the different risk levels of morning, afternoon, evening, and overnight driving. For example, driving a mile at night may be seen as more dangerous, and therefore pricier, than driving during the day.
Environmental factors: If GPS functionality is enabled, insurers can analyze road type, surrounding environment, weather, traffic, and other relevant points of interest. Driving on poorly paved roads in congested areas might cost pay-per-mile customers more than driving on a smooth, uncongested road.
Driving behaviors: Currently, data collection related to things like phone use or turning too quickly, along with speeding and braking patterns, is usually part of a telematics behavioral rating plan. In the future, that data may be included in a pay-per-mile model. Analysts say these tracking systems may incentivize drivers to drive more carefully, and there is research showing that telematics can decrease accident risk.⁸
Predictive pricing: Many consumers tend to underestimate the amount of miles they drive, but telematics would eliminate the need for the driver to estimate. As insurers amass data collections based on consumer driving, they may be able to use those collections to create more tools that can help drivers more accurately predict mileage.

Pay-per-mile programs powered by telematics also offer opportunities for parents. Programs could give parents the ability to track a vehicle's location if children are out past curfew or are driving past set boundaries.

How Verisk can help

There are many ways per-per-mile can evolve. We’ve only just begun to scrape the surface of what a pay-per-mile program, coupled with telematics, can do. While consumers have different levels of comfort when it comes to sharing their data, and insurers have different levels of sophistication regarding their data collection capabilities, there are already some programs that combine driving behavior information from telematics and pay-per-mile. As driving patterns change and usage-based insurance gains broader traction, Verisk is researching an alternative personal auto rating program designed to charge the insured based on miles driven.

Verisk has one of the largest datasets on insurance premiums and losses, as well as the mileage and driving behavior data from connected vehicles through the Verisk Data Exchange™, and we can use the insights generated from this data to help insurers price pay-per-mile accurately. Verisk can also help verify mileage for traditional personal auto insurance programs with its MileageConfirm solution, and the driving behavior data can also assist insurers with pricing traditional policies.

John Cantwell, “Mileage matters: New tools to get it right”, Visualize, April 1, 2015, < https://www.verisk.com/insurance/visualize/mileage-matters-new-tools-to-get-it-right/ >, accessed on January 13, 2022.
Steve Lekas, “Auto insurance premium leakage: A $29B problem for the industry”, Visualize, March 7, 2017, < https://www.verisk.com/insurance/visualize/auto-insurance-premium-leakage-a-29b-problem-for-the-industry/ >, accessed on January 13, 2022.
Camille Squires, “Even as they age, US millennials are driving less than older generations,” Quartz, January 7, 2022, <https://qz.com/2109753/us-millennials-drive-less-than-older-generations/>, accessed on January 10, 2022.
Kyle Schmitt, “AUTO INSURANCE DURING COVID-19: Anticipating consumer needs”, J.D. Power, May 14, 2020, < https://discover.jdpa.com/hubfs/Files/COVID-19/20200515_PULSE%20Insurance%20During%20COVID19_Distribution.pdf>, accessed on January 14, 2022.
Peter Littlejohns, “By Miles reports 75% sales increase in pay-per-mile insurance product in July”, J.D. Power, August 26, 2020, < https://www.nsinsurance.com/news/by-miles-sales-increase-pay-per-mile-insurance/ >, accessed on January 14, 2022.
Katherine Chiglinsky, “Allstate’s pay-per-mile car insurance proves popular in the work-from-home era”, Chicago Tribune/Bloomberg News, April 13, 2021, < https://www.chicagotribune.com/business/ct-biz-allstate-milewise-auto-policies-20210413-xhdiioihjrd2zdbwmbsshc2knu-story.html >, accessed on January 14, 2022.
Alison Kimberly, “How Do Car Insurance Companies Know Your Odometer Reading?”, MoneyLion, October 5, 2021, < https://www.moneylion.com/learn/odometer-reading/ >, accessed on January 13, 2022.
Ryan Driscoll, “ How telematics data is reducing driver risk and insurance premiums”, United States Property Casualty 360, October 2, 2019, < https://www.propertycasualty360.com/2019/10/02/how-telematics-data-is-reducing-driver-risk-and-insurance-premiums/ >, accessed on February 9, 2022.