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  • 2022
  • Working Paper
  • HBS Working Paper Series

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

By: Ray Kluender
  • Format:Print
  • | Language:English
  • | Pages:56
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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

Contracts; Market Participation; Consumer Behavior; Price; Insurance Industry

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.
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About The Author

Raymond P. Kluender

Entrepreneurial Management
→More Publications

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More from the Author
  • ELCA's Series A By: Anke Becker, Ray Kluender and William R. Kerr
  • The Impact of Financial Assistance Programs on Health Care Utilization: Evidence from Kaiser Permanente By: Alyce S. Adams, Raymond Kluender, Neale Mahoney, Jinglin Wang, Francis Wong and Wesley Yin
  • Early Withdrawal of Pandemic Unemployment Insurance: Effects on Earnings, Employment and Consumption By: Kyle Coombs, Arindrajit Dube, Calvin Jahnke, Raymond Kluender, Suresh Naidu and Michael Stepner
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