Most people in America pay a more-or-less flat fee for car insurance that's calculated according to their age, gender, driving record, and some other factors. One thing that often doesn't have much to do with your insurance bill, is how much you actually drive. This predominant system provides a good incentive for not getting into accidents (your insurance will go up if you cause a crash) but it doesn't do a great job of linking the cost of driving to actual driving.
There's a competing system which goes by a variety of names: pay-as-you-drive insurance, pay-per-mile insurance, or usage-based insurance. The idea, as you might expect, is that your insurance is prorated according to the amount you drive. The insurance company checks your odometer before and after a pay period, or installs a GPS unit in your car to keep track of your miles traveled, and you pay once the period ends. The average cost would be about 6 cents per mile.
By more making incremental driving incrementally more expensive insurance-wise, this system provides a little added disincentive for unnecessary driving. And people who don't drive much in the first place don't have to pay as much for insurance. This has obvious environmental benefits, can reduce traffic, and also helps insurance companies price their coverage in better accordance with actual risk.
This handy video, made by a "cranky and curious" citizen of British Columbia, explains the whole idea pretty well, goofy soundtrack notwithstanding.
The Wikipedia page has information about where pay-as-you-drive insurance is available around the world (and in the United States). Progressive insurance offers the MyRate program in Alabama, Colorado, Kentucky, Louisiana, Michigan, Minnesota, Maryland, New Jersey, and Oregon. A few other pilot programs have been discontinued due to lack of demand from customers. I can only assume this is because people aren't aware of the option. So I wrote a post about it.
Via Sightline Daily