Insurance is a large part of a car-owner's transportation budget. Unlike maintenance or gas, insurance premiums are usually set in a fixed, "all-you-can-drive", pricing structure.
Premiums are generally determined not by how much you drive, but by your age, gender and car model. The fixed cost of conventional insurances does not always reflect car use, and two similar drivers with varying commutes may pay the same amount every month.
A Pay-as-you-drive (PAYD) approach to car insurance provides an alternative for infrequent drivers. PAYD insurance is a way for motorists to choose an insurance policy that corresponds to how much they drive.
The concept is simple: insurance becomes a variable cost, so that drivers save money when they maintain low mileage on their vehicle. PAYD is a user option and provides an additional choice rather than requiring drivers to track their mileage.
When drivers enroll in PAYD policies, mileage is verified by odometer readings, automotive repair records, or in-vehicle GPS devices such as OnStar.
In addition to reducing premium payments for drivers, PAYD policies have demonstrated social and environmental benefits too. Less driving means fewer accidents, less congestion, as well as reduced pollution and carbon emissions. As such, the California Air Resources Board has recommended the adoption of PAYD insurance as one of the means to meet future climate change gas reduction targets.
As of March 2012, there are currently four insurance companies in California who offer PAYD pricing policies.