Insuring the Uninsured

Recent news in the UK reports that uninsured drivers cost law-abiding motorists £400 (US$557) million annually. Another report claims this costs compliant motorists an extra £30 (US$42) a year. The UK is proposing new legislation to make it an offense to own an uninsured vehicle, to say nothing of driving one. This cannot be so simple, as there are many reasons to own a vehicle but not drive it or to drive a vehicle that you do not own.

Perhaps there is another solution. Government-managed pay-as-you-drive (PAYD) insurance as a fall-back safety net can be imposed on every vehicle at the fuel pump. This can be set as a per-gallon premium, and immediately waived given proof of insurance.

Paying at the pump is not a new idea as a delivery mechanism for PAYD coverage. The problem is that such insurance is best scaled to a driver’s experience and driving record – i.e. PAYD is not simply a distance-based insurance, but a weighted, distance-based insurance. Hence paying by the gallon is very crude – although certainly more efficient than paying by the year. Furthermore paying at the pump would be expensive on a per-mile basis so would encourage purchase of more usual coverage or even further encourage the offering of PAYD policies that are properly metered by distance rather than gallons and scaled to the driver’s record.

Pay-at-the-pump should not be the normal payment system. Rather, I propose it as a simplifier for rental-car insurance, temporary insurance lapses, occasional drivers of antique vehicles, borrowers of a friend’s car, etc, as well as a fair way to make uninsured drivers insured.

The cost of adding the premium to fuel is small, but the cost of the payment-proof system and the associated labour of checking compliance before waiving the premium would not be trivial. The question is can it be done for much less than £30 per honest motorist per year?

I believe it can be. It would require that insurers provide each insured with an electronic ID card that holds the insurance expiry date, vehicle descriptor, plate number, etc. That part would cost far less than £30. A more significant part is the cost to the operators of pumping stations for compliance checks and the changeover costs for their cash-management systems. But if the pre-gallon premiums were set properly, the extra money in the system would leave the insured motorist whole while taking uninsured drivers off the road.