The Effect of the Introduction of a »Pay Per Use« Option within motor TPL insurance

Stefan Trappl (), Karl Zehetner () and Robert Pichler ()
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Stefan Trappl: FHWien University of Applied Sciences of WKW
Karl Zehetner: FHWien University of Applied Sciences of WKW
Robert Pichler: FHWien University of Applied Sciences of WKW

Journal of Banking and Financial Economics, 2014, vol. 1, issue 1, 73-87

Abstract: In this paper the effects of the introduction of the so called “pay per use” -insurance products are examined. These products collect data of kilometers driven by policy holders. As a result of this data, policy holders can get a refund on the insurance-premium paid. Since there is a positive correlation between mileage and the risk of causing an accident the refund is granted to low-mileage drivers, so in theory the “pay per use” product is more attractive to low-mileage drivers than to long-distance drivers. The authors examine empirical evidence to find out whether or not it is mainly low-mileage-drivers who choose the “pay per use” product. Secondly, the authors examine whether there are other significant differences between characteristics of “pay per use” policy-holders and “traditional” policy- holders. Therefore a random sample of 4,000 car-insurance - clients (2,000 “pay per use” policy- holders and 2,000 “traditional” policy-holders) is reviewed. In addition the effects of the introduction of “pay per use” products are discussed, in case of a selection effect between low- and high -mileage drivers is observed.

Keywords: Insurance; Pay per Use; Pay as you Drive; Adverse Selection; Selection Effects (search for similar items in EconPapers)
JEL-codes: D82 G12 G22 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:sgm:jbfeuw:v:1:y:2014:i:1:p:73-87

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