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Pay-at-the-Pump Auto Insurance

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  • Khazzoom, J. Daniel

Abstract

PAY-AT-THE-PUMP is a proposal to replace the current insurance system of lump sum payments for automobile insurance by a mechanism whereby motorists pay for their insurance as they buy fuel for their vehicles. PAY-AT-THE-PUMP has several advantages. It reduces insurance cost and cross subsidies and enhances equity. It also benefits the environment, safety, balance of payments, and security. In this paper we study limited but very important issues in the theory and implementation of PAY-AT-THE-PUMP insurance. We address issues of efficiency, subsidy, equity, externalities, safety, insurance cost and cost of insuring the uninsured motorist under a PAY-AT-THE-PUMP regime. We use the insurance industry’s criticisms of mandatory auto insurance as a lens through which we view PAY-AT-THE-PUMP insurance and ask how PAY-AT-THE-PUMP fares by comparison. Finally we address one aspect of insurance that has been neglected in the current debate -- the human dimension of the problem of uninsured motorist and the contribution PAY-AT-THE-PUMP can make to solve this problem.

Suggested Citation

  • Khazzoom, J. Daniel, 1999. "Pay-at-the-Pump Auto Insurance," RFF Working Paper Series dp-98-13-rev, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-98-13-rev
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-98-13-REV.pdf
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    References listed on IDEAS

    as
    1. J. Daniel Khazzoom, 1997. "Impact of Pay-at-the-Pump on Safety Through Enhanced Vehicle Fuel Efficiency," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 103-133.
    2. Smith, Eric & Wright, Randall, 1992. "Why Is Automobile Insurance in Philadelphia So Damn Expensive?," American Economic Review, American Economic Association, vol. 82(4), pages 756-772, September.
    3. J. David Cummins & Sharon Tennyson, 1992. "Controlling Automobile Insurance Costs," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 95-115, Spring.
    4. Carol A. Dahl, 1986. "Gasoline Demand Survey," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 67-82.
    5. Robert W. Hartman & Stephen D. Sugarman, 1994. "“Pay at the pump” auto insurance: The vehicle injury plan (VIP) for better compensation, fairer funding, and greater safety," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 13(2), pages 363-368.
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    1. Khazzoom, J. Daniel, 1999. "Pay-at-the-Pump (PATP) Auto Insurance: Criticisms and Proposed Modifications," RFF Working Paper Series dp-99-14-rev, Resources for the Future.

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