Insurance by the mile to reduce miles driven?

[T]here is one thing we could do now that would change how people consume gasoline. We could switch from the current way in which people pay for auto insurance to a pay-by-the-mile system. Such a switch might reduce annual gasoline consumption by as much as 10 percent, without raising the cost of insurance for an average driver. The key is to change the way that people view the cost of driving their car.

Currently, auto insurance is viewed as a fixed expense. People pay the same amount for their insurance no matter how much they drive. This means that when someone is comparing the cost of driving to work with the cost of carpooling or public transportation, they won’t factor in the cost of insurance, because they will pay the same whether they make any particular trip or not.

This would change if drivers paid for insurance by the mile.