What's Driving Uninsurance

Despite a universal insurance mandate, 30 million drivers in the United States do not carry the minimum automobile liability insurance required by law. Traditional auto insurance contracts charge a fixed monthly premium to cover unlimited driving, making them more attractive for higher mileage drivers (adverse selection) and encouraging excess driving on the margin (moral hazard). We introduce a Pay-When-You-Drive (PWYD) contract designed to increase take-up among low income uninsured drivers, which charges an incremental insurance premium per minute of driving. We randomize auto insurance contract offers to uninsured drivers in California (where 15% of drivers lack insurance), varying the flexibility of the contract (traditional monthly premium driving versus a per-minute premium), the amount of the upfront payment required, and the price of per-minute premiums. The design will test for liquidity constraints and expected risk as explanations for driving without insurance, and evaluate the potential of PWYD contracts to increase insurance take-up among uninsured drivers. Additional price variation will allow us to estimate the elasticity of take-up and insured driving with respect to price, and to test for the presence of adverse selection and moral hazard in auto insurance markets.