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Pay As You Drive (PAYD)

Scope for a variable car insurance premium in the Netherlands?

Vehicle insurance is a major cost item for motorists, with premiums currently being paid as a lump sum on a quarterly or monthly basis. A more variable premium charge calculated per kilometre, per day or per trip, for example, might have major benefits, in terms of overall cost to society, because motorists would then assess whether a given trip is worth the extra risk and therefore extra premium. At the request of the Dutch Ministry of Transport and Water Management and in collaboration with TNO-Inro, CE has examined the feasibility and potential effects of insurance premium variabilisation and differentiation in the form of a ‘Pay as You Drive’, or PAYD system. The main conclusion of the study is that if the costs of kilometre or trip registration can be kept modest the overall benefit to society may indeed be substantial, in the order of several hundred million euro a year. To make variable premiums commercially attractive for insurers, too, will require either some form of government incentive, such as insurance tax exemption for variable premium products, or a cheap method for insurers to establish actual vehicle usage, possibly by ‘piggy-backing’ on other on-board registration systems such as those currently being developed for traffic information services.


Huib van Essen

Delft, December 2003

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