The Effect of the Introduction of a "Pay Per Use" Option within Motor TPL Insurance
In this paper the effects of the introduction of the so called "pay per use"-insurance products are examined. These products collect data 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 per use" products are discussed, in case of a selection effect between low- and high-mileage drivers is observed. (original abstract)
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