Review of Financial Studies Vol. 37 No. 4 2024
Pay-As-You-Go Insurance: Experimental Evidence on Consumer Demand and Behavior
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.
- DOI
- 10.1093/rfs/hhad080
- Volume
- 37
- Issue
- 4
- Pages
- 1118-1148
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref