Publications
Publications
- 2022
- HBS Working Paper Series
Pay-As-You-Go Insurance: Experimental Evidence on Consumer Demand and Behavior
By: Ray Kluender
Abstract
Pay-as-you-go contracts reduce minimum purchase requirements which may increase market participation. We randomize the introduction and price(s) of a novel pay-as-you-go contract to the California auto insurance market where 17 percent 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 three-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 percent of drivers have a purchase rejected for insufficient funds.
Keywords
Citation
Kluender, Ray. "Pay-As-You-Go Insurance: Experimental Evidence on Consumer Demand and Behavior." Harvard Business School Working Paper, No. 23-030, December 2022.