The Effect of the Introduction of a “Pay Per Use“ Option within Motor TPL Insurance Cover Image

The Effect of the Introduction of a “Pay Per Use“ Option within Motor TPL Insurance
The Effect of the Introduction of a “Pay Per Use“ Option within Motor TPL Insurance

Author(s): Stefan Trappl, Karl Zehetner, Robert Pichler
Subject(s): Social Sciences, Financial Markets
Published by: Wydawnictwo Naukowe Wydziału Zarządzania Uniwersytetu Warszawskiego
Keywords: insurance; pay per use; pay as you drive; adverse selection; selection effects

Summary/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 mileage 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 peruse” products are discussed, in case of a selection effect between low- and high -mileage drivers is observed.

  • Issue Year: 1/2014
  • Issue No: 1
  • Page Range: 73-87
  • Page Count: 15
  • Language: English