Pay-As-You-Go Insurance: Experimental Evidence on Consumer Demand and Behavior

Raymond Kluender

The Review of Financial Studies, 2024, vol. 37, issue 4, 1118-1148

Abstract: Pay-as-you-go contracts reduce minimum purchase requirements, which may increase market participation. This paper randomizes the introduction and price(s) of a novel pay-as-you-go contract to the California auto insurance market, where 17% of drivers are uninsured. The pay-as-you-go contract increases take-up by 10.8 p.p. (89%) and days with coverage by 4.6 days over the 3-month experiment (27%). Demand is relatively inelastic, and pay-as-you-go increases insurance coverage in part by relaxing liquidity requirements: most drivers’ purchasing behavior is consistent with a cost of credit in excess of payday lending rates, and 19% of drivers have a purchase rejected for insufficient funds.

Keywords: D14; G22; G52; R41 (search for similar items in EconPapers)
Date: 2024
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