California announces regulations to pioneer pay-as-you-drive insurance policies that allow motorists to buy insurance based on the miles they drive. Per-mile pricing, using measuring devices like Mile Meters, are expected to incentivize consumers to optimize on their vehicle use.
Such insurance is being seen as a means "to accurately tie insurance cost to accident risk, and to provide an incentive to walk, bike or use public transportation". Incentives like higher per-mile insurance cost for those who have higher mileage would entice people to optimize on their private vehicle use.
Coupled with policies on congestion pricing, parking etc, such per-mile insurance could go a long way in increasing the efficiency in private vehicle usage, relieving traffic congestion and increasing road safety.
Update 1 (21/6/2011)
The Nudges blog points to Snapshot, Progressive’s usage-based insurance program, which charge drivers insurance on a pay as you drive (PAYD) model. Progressive has been one of the most aggressive innovators with PAYD insurance. It first began offering a voluntary PAYD program called MyRate in six states in 2008. Three years later, thanks to inexpensive, if not quite cheap wireless technology, the idea is now available nationwide through an initiative called Snapshot.
Progressive gives a discount to policyholders based on information about their driving habits collected over a month-long period. Drivers put a sophisticated little tracking device in their cars for six months. At the end of the first month, certain “good drivers” may be eligible for a discount of up to 30 percent based on that “snapshot” of driving behavior. (At the end of the six months, Progressive uses all the data to calculate a renewal rate.)