What's Driving Uninsurance? Pay-When-You-Drive Contracts and Market Failures in Auto Insurance
Last registered on March 12, 2018


Trial Information
General Information
What's Driving Uninsurance? Pay-When-You-Drive Contracts and Market Failures in Auto Insurance
Initial registration date
December 26, 2017
Last updated
March 12, 2018 10:27 AM EDT

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Primary Investigator
Other Primary Investigator(s)
Additional Trial Information
In development
Start date
End date
Secondary IDs
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.
External Link(s)
Registration Citation
Kluender, Raymond. 2018. "What's Driving Uninsurance? Pay-When-You-Drive Contracts and Market Failures in Auto Insurance." AEA RCT Registry. March 12. https://www.socialscienceregistry.org/trials/2537/history/26510
Experimental Details
We will introduce a novel auto insurance contract into the minimum liability auto insurance market in California. In traditional contracts, drivers pay one monthly lump sum premium which covers all of their driving for the month. We will introduce a new "pay-when-you-drive" (PWYD) contract that charge drivers per minute of driving with no up front monthly premium. The contract offered, required deposit, and the actuarially adjusted per minute premium will be experimentally varied as described in the Experimental Design section.

PWYD insurance will be activated and deactivated using SMS messages. We will additionally passively monitor the driving behavior (driving time and safety) for subsamples of each treatment group using a phone-based safe driving application and on-board diagnostic devices.
Intervention Start Date
Intervention End Date
Primary Outcomes
Primary Outcomes (end points)
(1) Insurance Take-Up (Binary): Whether an individual accepted the quoted insurance offer and enrolled in the plan (defined as signing the contract and making the initial payment/deposit). (2) Insurance Enrollment (Positive Integer): The number of days the individual was enrolled in their insurance plan. (3) Total Amount Spend on Insurance (Continuous): Total spent on insurance during the three month study period. (4) Activations (Positive Integer): The number of times a driver texts to activate their insurance. (5) Insured Driving Time (Continuous): The number of minutes PWYD insurance is active (sum of time between activation and deactivation over all activations).
Primary Outcomes (explanation)
Secondary Outcomes
Secondary Outcomes (end points)
(6) Activations by Time of Day (Positive Integer) (7) Insured Driving Time by Time of Day (Continuous) (8) Observed Driving Time (Continuous): For individuals in subsamples who install the phone-based application or on-board diagnostic device to passively track their total driving time, we will be able to measure their observed driving time in addition to their active insured driving time. We can use the comparison between this outcome and reported insured driving time to estimate the share of driving that is uninsured.
Secondary Outcomes (explanation)
Experimental Design
Experimental Design
We will randomly offer drivers applying for minimum liability auto insurance one of four contract offers:

A. Traditional Insurance Plan
B. High Deposit / Low Price PWYD Plan
C1. Low Deposit / Low Price PWYD Plan
C2/C2d. Low Deposit / High Price PWYD Plan

Conditional on enrolling in C2/C2d, half of these drivers will receive a discounted per minute premium to the low price PWYD plan.
Experimental Design Details
Not available
Randomization Method
We will pre-randomize the initial offer in blocks of 50 applicants. We will additionally pre-randomize within each treatment group of enrolled drivers.
Randomization Unit
We will randomize each individual to a treatment group, blocking the randomization every 50 applicants.
Was the treatment clustered?
Experiment Characteristics
Sample size: planned number of clusters
We will not have separate clusters.
Sample size: planned number of observations
The study sample will be uninsured drivers in California shopping for minimum liability auto insurance coverage. We are targeting 10,000 applications, which will result in several thousand drivers (depending on take-up rates from the first stage of the study). We will have a pool of funding which we will apply to subject acquisition or providing insurance for individuals who enroll. The budget constraint will bind and we will stop soliciting applications when forecasted outlays exhaust the pool of funding. The number of individuals we can include in the study thus depends on the realizations of the following cost parameters: - Price per lead (this is a market rate, per-click price that will fluctuate) - Conversion rates (the share of individuals directed to our website who apply) - Take-up rates (the share of drivers offered a quote who choose to enroll) - Insurance costs (traditional premium less spending on PWYD insurance) for those who enroll insurance
Sample size (or number of clusters) by treatment arms
We will allocate 20% of applicants to the control group (a traditional plan), 16% to a pay-when-you-drive plan requiring an initial deposit the amount of the traditional plan premium, 20% to the low price pay-when-you-drive plan, and 22% to the high price pay-when-you-drive plan without a discount, and 22% to the high price pay-when-you-drive plan (discounted to the low price after enrollment).

The number of drivers for the driving outcomes will depend on the take-up rates and the number of drivers assigned to each treatment group.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB Name
Massachusetts Institute of Technology Committee on the Use of Humans as Experimental Subject
IRB Approval Date
IRB Approval Number