The Real Effects of the Uninsured on Premia

Sun, Stephen Teng and Yannelis, Constantine (2013): The Real Effects of the Uninsured on Premia.

Abstract

In some insurance markets, the uninsured can generate a negative externality on the insured, leading insurance companies to pass on costs as higher premia. Using a novel panel data set and a staggered policy change that exogenously varied the rate of uninsured drivers at the county level in California, we quantitatively investigate the effect of uninsured motorists on automobile insurance premia. Consistent with predictions of theory, we find uninsured drivers lead to higher insurance premia. Specifically, a 1 percentage point increase in the rate of uninsured drivers raises insurance premia by between 1-2%. We also discuss corrective Pigouvian taxes.

• Item Type: MPRA Paper
• Language: English
• Keywords: Insurance, externality, uninsured, Pigouvian tax
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial Studies; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R4 - Transportation Economics > R40 - General

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