Prepaid Auto Insurance Contracts and Willingness-to-Pay for Lower Liquidity Requirements

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.

2018-01-09

2018-10-09

For all participants:

(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.

For participants in pay-when-you-drive plans:

(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).

(6) Activations by Time of Day (Positive Integer)

(7) Insured Driving Time by Time of Day (Continuous)

(8) Total 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 total 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.

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.

We will direct potential participants to the Hugo website (www.withhugo.com). The homepage will provide an explanation of how "pay-when-you-drive" (PWYD) insurance functions and invite potential participants to apply for a quote. We will obtain participants primarily from insurance comparison shopping websites, where we will advertise to uninsured drivers shopping for minimum liability automobile insurance in California.

Drivers will enter their information and apply for a quote. We will price a quote for traditional minimum liability insurance coverage based on the actuarial tables for a typical insurance provider in California. Randomizing within each block of 50 applications for a quote, we will assign the driver to one of four initial treatment categories (A, B, C1, or C2/C2d):
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

20% of applicants will be assigned to the control group, which will be offered a traditional minimum liability insurance plan with no marginal price per minute of driving. Applicants assigned to PWYD plans will have their traditional monthly premium translated to a per-minute premium, as would be implied by traditional actuarial tables based on their mileage rating and assuming an average speed of 32 miles per hour. 20% of applicants will be assigned to treatment group C1, and will receive an offer to enroll in a low priced PWYD plan with a minimum deposit of $7. 16% will be assigned to treatment group B, which will receive the same contract offer but require a minimum initial deposit equal to the traditional monthly premium (withdraw-able at the end of the first month of coverage). Finally, 44% of applicants will be assigned to treatment groups C2/C2d and receive an initial offer of a high-price (50% higher than the low price plan) PWYD plan with a minimum deposit requirement.

For participants who accept the quote and make the required deposit to enroll will receive 3 months of liability car insurance. PWYD insurance will be activated by an SMS text message of "DRIVE" and deactivated by an SMS text message of "DONE".

We will complement our SMS-based insurance platform with additional data collection using both OBD and app-based solutions for subsets of drivers. We will assign 150 OBDs to drivers who have enrolled in treatment groups C1 and C2/C2d. Based on our projected sample size (though this will vary substantially by realized take-up rates), we will randomly offer OBDs to 25% of individuals enrolled in each minimum deposit PWYD treatment group until we have 50 installed in each of C1, C2, and C2d. We will also invite 25% of enrolled drivers (conditioning on having a smartphone) in all treatment groups to install a phone-based application which will passively track their time on the road and driving habits.

For drivers who have enrolled in the study at the "high" price, we will randomly assign every other driver who enrolls in treatment group C2/C2d to treatment group C2d. These drivers will receive a 33% discount on the per-minute premium while they are insured, generating random variation in both price faced conditional on price offered and initial price offered for the same price faced.

We will pre-randomize the initial offer in blocks of 50 applicants. We will additionally pre-randomize within each treatment group of enrolled drivers.

We will randomize each individual to a treatment group, blocking the randomization every 50 applicants.

No

We will not have separate clusters.

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

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 44% to the high price pay-when-you-drive plan.

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.