Paper Number

ICIS2025-2366

Paper Type

Short

Abstract

This paper examines how usage-based insurance (UBI) reshapes insurance markets, driver behavior, and environmental policy through a game-theoretic analysis of three market structures: traditional insurance (TI) vs. TI, UBI vs. TI, and UBI vs. UBI. While UBI leverages telematics to eliminate moral hazard through continuous monitoring of driving behavior, it introduces privacy concerns that segment the market. We explore how UBI impacts drivers’ choices, insurer profitability, and government investment in pollution reduction. Compared to TI vs. TI, the competition between UBI and TI enables market differentiation, increasing insurer profits. Despite privacy costs, UBI can enhance social welfare by incentivizing significant government investment in pollution reduction. These findings highlight the trade-offs between long-mileage driving benefits, privacy, and pollution, offering insights for policymakers to design balanced insurance markets.

Comments

22-FinTech

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Dec 14th, 12:00 AM

Impact of Usage-Based Insurance: Market Competition, Welfare, and Environmental Sustainability

This paper examines how usage-based insurance (UBI) reshapes insurance markets, driver behavior, and environmental policy through a game-theoretic analysis of three market structures: traditional insurance (TI) vs. TI, UBI vs. TI, and UBI vs. UBI. While UBI leverages telematics to eliminate moral hazard through continuous monitoring of driving behavior, it introduces privacy concerns that segment the market. We explore how UBI impacts drivers’ choices, insurer profitability, and government investment in pollution reduction. Compared to TI vs. TI, the competition between UBI and TI enables market differentiation, increasing insurer profits. Despite privacy costs, UBI can enhance social welfare by incentivizing significant government investment in pollution reduction. These findings highlight the trade-offs between long-mileage driving benefits, privacy, and pollution, offering insights for policymakers to design balanced insurance markets.

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