Can Insurance Technology Resolve the Problem of Uninsured Drivers?

High fees prevent many motorists from purchasing car insurance, often leading to dire consequences. Raymond Kluender offers a new way of making insurance affordable and roads safer: allowing drivers to pay only for the days they drive.

Despite regulations requiring motorists to purchase auto insurance, 13% of motorists in the United States drive uninsured vehicles, a problem that plagues uninsured drivers. serious financial risks and result in higher premiums for insured motorists.

Many uninsured drivers take these risks on the road because they cannot afford the policies offered by traditional carriers, which often require insurance several months in advance.


But there may be a solution: insurance technology could allow cash-strapped motorists to access shorter, more affordable coverage periods. My research shows that many low-income drivers seize the opportunity to buy insurance when offered a “pay as you go” option, which allows them to purchase only a few days of coverage at a time and pay only insurance payments on the days they actually bought the insurance.

High costs for the uninsured

While 13% of drivers nationwide are uninsured, the problem is even worse in some states like California (17%), Michigan (26%) and Tennessee (24%), according to insurance research.

Uninsured drivers face serious financial risk in the event of an accident and risk thousands of dollars in fines and vehicle forfeiture if found driving uninsured. have insurance. And they are not the only ones who suffer. Insured motorists also have to pay the price because their premiums must take into account the risk of an accident with an unclothed driver. According to a 2016 study, uninsured drivers increase insurance premiums for insured motorists by $27 billion a year and $6 billion in California alone.

However, for motorists with no assets or savings to protect, coverage may offer minimal benefits. Low-income drivers also may not consider insurance a good deal, as they drive less often but are rarely rewarded with lower premiums because it is too expensive for insurance companies to cover close to their mileage.

Additionally, motorists seeking state minimum coverage will be excluded from shopping in the more expensive “non-standard” market, which gathers them with high-risk drivers. High risk has been denied coverage by standard carriers, even if they have a Driving Record.

How technology can help

Innovations in insurance technology can solve problems of high fees by automating many transaction costs, indexing how much drivers have to pay pay on the days they actually drive and reduce the large upfront payments needed to make insurance more affordable. Legacy insurers often use systems that have evolved from the traditional approach of manual handling of contracts and checks, making it difficult to adapt to the flexibility supported by the company.

In 2019, I conducted a test with Hugo Insurance, an insurance technology company based in California, to introduce a new “pay-as-you-go” policy for drivers without coverage in the state auto insurance market. The policy allows drivers to buy insurance every few days and only pay for the days they drive.

Uninsured motorists requesting a random insurance quote are offered a traditional policy requiring three months of premium or a PAYG policy. The results showed that motorists offered a pay-by-ride policy were three times more likely to purchase insurance and had about five extra days of coverage in the three months of the test, even after accounting for subscriptions. signed by the carriers. outside the experiment.

Offers an affordable insurance option

To test how uninsured motorists appreciate the option to purchase coverage for fewer days at a time, we randomly selected Check to see if drivers get a “Discount Package” when buying multiple days at once. The rebate is designed to be large enough to move from buying in bulk to buying in fewer days involving credit costs that are at least as high as a typical short-term loan.

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