"People aren't going to make decisions just to save the earth," says Chris Gay. "But if you can save $1,000 a year, you're going to change your behavior." Gay isn't flogging a solar-powered gizmo or a carbon-trading scheme. He's selling insurance. His company, MileMeter, is looking to revolutionize car insurance — while creating incentives to drive less.
Auto insurers usually charge a flat fee for a six-month plan. MileMeter, by contrast, sells auto insurance by the mile. If you drive fewer miles than the average driver, you should pay lower premiums. Gay envisions people rethinking their driving habits — even moving closer to town — after running the numbers. Recent studies out of the Brookings Institution and the University of California, Berkeley, support that claim. In 2008, Brookings found that adopting pay-per-mile car insurance nationwide would reduce our driving miles by 8%. It would take an added $1-a-gallon tax to produce the same effect.
Dallas-based MileMeter is the first company to offer pay-by-the-mile policies, but the idea goes back to the 1980s. That's when a lawsuit filed by the National Organization for Women argued that women were being overcharged for car insurance. NOW insurance project director Patrick Butler crunched the data and found a surprise: "It's not that women are safer drivers," he says. "It's that they drive less." Accidents increase at a steady rate with the number of miles driven.
That, Gay says, is what allows MileMeter to write profitable policies, while charging as little as $60 for 2,000 miles a year. One niggle: odometer fraud, which MileMeter combats by having customers send photos of their odometers periodically.
MileMeter has been available in Texas since October 2008. After a recent retooling that allows people to buy more miles as needed and to roll over unused mileage, the company is planning a national rollout in as little as a year. "The opportunity is huge," says Gay. "We're surrounded by greenfield."
A version of this article appeared in the April 2010 issue of Fast Company magazine.