Lower emissions with pay as you go car insurance

Car culture is one of the big obstacles in the transition to a lower carbon future. Dangerous climate change can’t be stopped without breaking the addiction to fossil fuel motoring – but it’s easier said than done. Cars are hugely convenient, many people can’t get by without them, and they’re a real status symbol as well. We’re deeply attached to our cars.

So here’s one way to help reduce emissions from cars without necessarily giving up driving altogether: pay as you go car insurance.

At the moment, we pay a flat annual fee for car insurance. Once we’ve paid for the year, it doesn’t matter if we drive sixty miles every day to work, or just take the car out occasionally at the weekend. It all costs the same. In fact, since we’ve paid for more miles, we might as well drive more. It would be poor value otherwise. It’s the same logic as an all-you-can-eat buffet.

If, on the other hand, you paid according to your annual mileage, you’d have a reason to think twice before you drive anywhere. You’d be more inclined to walk, especially shorter trips. Perhaps you’d stop doing the school run by car. For some people it might be just the extra incentive to get back on the bike.

I came late to driving, and I only learned to drive when our second child was born. I mainly got my license so I could help out with long journeys, and generally use the car once a fortnight or so. We’ve set up our life so that we don’t need to drive, so it struck me as a little strange that I have to pay a flat fee. Obviously people who drive more are likely to be more experienced. But equally the likelihood of being in an accident goes up the longer you spend on the road. So I feel like I am paying a price based on an average level of risk, when I ought to fall below it. It’s a price structure that serves the insurance companies rather than me as a customer. A pay as you go option would make more sense for someone like me, and I’d happily fit a black box to keep tabs on mileage.

Until recently, no such option was available, but this year two new services arrive on the market in the UK: Cuvva is up and running, and Just Miles is imminent. Both offer mobile phone based insurance for occasional trips. ‘Stop paying for miles you don’t drive’ says the latter. It’s great that the option is now on the table, though you’d have to tell your insurer every time you drive the car. Surely it would be possible to create something in between, where the price you paid was based on your annual mileage? I nominate Dale Vince at Ecotricity to look into this and add car insurance to their growing portfolio of environmentally minded businesses.

These two start-ups are targeting their offer at people who don’t drive often and who would like to save money. I’m interested in how the idea could be used to lower emissions, because every mile not driven is a tiny slice off that huge burden of transport CO2. It wouldn’t be a massive reduction, but if it encouraged people to walk or cycle more it would have additional benefits for our health and our communities, and it would reduce congestion for other motorists. It sounds to me like an idea worth investigating.

Has anyone else looked into it? I can only find one study from California in 2008. It estimates an 8% reduction in car use, delivering 7-9% of the emissions reductions on the state’s carbon targets. Two thirds of drivers would have lower premiums, so everybody wins.

Everybody except the insurance companies that is, and that’s why new companies or socially aware businesses will have to take this on. It’s unlikely to come from the industry.

I’m writing from a UK perspective. I wouldn’t be at all surprised if someone informs me that it’s all pay as you go where they are, so please let me know if this is more common in your country. And if you can see an obvious flaw in the plan, feel free to point that out too!


  1. I really don’t understand your point – all car insurance is based, among other things, on annual mileage. There is no ‘flat fee’.

    1. The companies offering pay as you go car insurance would disagree!

      You enter all sorts of information, mileage being one of them, into a form. That builds up a picture of who you are and how you use your car, and from that a quote is derived. That’s the price you pay for the year then, regardless of how much you drive.

  2. If you have a classic car or any other you only use ocassionally, you can get limited mileage insurance that covers you for 1000 / 3000 / 5000 miles depending on what you agree / pay. Just search on ‘classic car insurance’.

    You can also get some sort of tracker device to put in cars (aimed at new or young drivers) where the cost is dependent on driving style / whether you drive late at night etc. If you drive fast then you get penalised.

    An obvious solution is to put 1p / litre onto fuel to fund an automatic 3rd party insurance scheme run by the State (or a contractor) that covers ALL drivers, so no one, even villians, are uninsured if they crash into you. The more you drive, the more you’d pay. I’d also like to see vehicle road tax changed so it is no longer a fixed annual fee but is funded by an extra tax on petrol / diesel. Then the person who only drivers 1000 miles pays little for their road tax and the person doing 100,000 miles in a thirsty V8 will pay alot. And electric vehicle owners would pay nowt.

    1. That’s an interesting idea with automatic 3rd party cover, although given the political antipathy to fuel taxes, it could be a hard sell.

      And yes, telemetric devices in cars are a good way to track mileage. Some people find the up-front cost a problem, but they’re going to be more common in future and could well be a platform for creating a better and greener driving culture.

    2. The Motor Insurers’ Bureau (MIB) was founded in the UK in 1946 as a private company limited by guarantee and is the mechanism in the UK through which compensation is provided for victims of accidents caused by uninsured and untraced drivers, which is funded by an estimated £30 a year from every insured driver’s premiums.

  3. This only works if you have a telemetric tracker in the car (either device or smart phone app). As Alison says a flat fee for a certain mileage isn’t very different from current insurance.

    Have you looked into any of the black box telemetric policies as the amount you drive does effect the price as well as how well you drive?

      1. Yes, telemetrics-based insurance is part way there, but like vintage car insurance, you get a quote based on an estimate of your mileage and then top up if you go over it. It’s not designed to reward low mileage.

        I did look into telemetrics. I didn’t include it because I wanted to keep the post short. I also left out Aviva’s experiment with pay as you drive, which they tried for a couple of years a while back. I didn’t go into these because I’m not interested in complaining about car insurance, I’m asking the question of whether or not a different insurance model could help reduce transport emissions. That’s what I can’t find information about, and where I’d like to see more research.

  4. In the US it is essentially a flat fee based on your driving record.
    If you drive less than 10k miles you may get a small discount.
    But, nothing like what you are talking about.

  5. Jeremy – there are numerous ‘pay a you drive’ insurance options available now in the UK and the US and as the sharing economy grows there will be more and more insurance based on usage rather than a flat annual cost. As car are only used for around 20% of the time probably a better way of reducing pollution would be to join a car club such as Zipcar. Then you only pay for the car and insurance when you use it.

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