Publications
Publications
- April 2024
- Review of Financial Studies
Pay-As-You-Go Insurance: Experimental Evidence on Consumer Demand and Behavior
By: Raymond 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, Raymond. "Pay-As-You-Go Insurance: Experimental Evidence on Consumer Demand and Behavior." Review of Financial Studies 37, no. 4 (April 2024): 1118–1148.