Public opinion on usage-based motor insurance schemes: A stated preference approach

Abstract

This paper aims to investigate which parameters affect users’ willingness to pay for alternative usage-based motor insurance pricing schemes such as Pay-as-you-drive (PAYD) and Pay-as-how-you-drive (PHYD). For that reason, a dedicated questionnaire was designed and administered to 100 participants including both revealed and stated preference questions and proposed scenarios regarding current and alternative insurance schemes. In order to account for unobserved heterogeneity, a mixed logit model was applied to analyze vehicle insurance choice. Candidate variables include the effect of driving characteristics, drivers’ demographics and the price of vehicle insurance premiums. Two distinct mixed logit models were developed; one mixed logit model to investigate the factors influencing the choice of present insurance policy over PAYD and one for present insurance policy over PHYD. Results indicated that women and smartphone owners are more likely to choose a new insurance schemes. Kilometers and cost reduction were also found to affect similarly the choice for both Usage-Based-Motor Insurance (UBI.) Moreover, the higher the speed reduction imposed to the user, the lower the probability of the UBI scheme to choose it. It was also found that people over 40 years old are less likely to choose PHYD insurance.