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The Real Effects of the Uninsured on Premia

Author

Listed:
  • Yannelis, Constantine
  • Sun, Stephen Teng
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.

Suggested Citation

  • Yannelis, Constantine & Sun, Stephen Teng, 2013. "The Real Effects of the Uninsured on Premia," MPRA Paper 48264, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:48264
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    File URL: https://mpra.ub.uni-muenchen.de/50087/1/MPRA_paper_50087.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Insurance; externality; uninsured; Pigouvian tax;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General

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