| To better understand the dynamics between affordability and availability of automobile insurance in the U.S., research is required concerning how price-elastic and income-elastic automobile insurance really is. Knowing price and income elasticity will help understand price controls associated with regulation and residual markets, and incentives associated with underpricing. Income elasticity estimates become important as changes in the economy occur, affecting the ability of drivers to purchase insurance. In states in which automobile premiums are regulated, regulators should explicitly consider price and income elasticity. This research is a first exploratory attempt to estimate private passenger automobile insurance price and income elasticity by state.; Although demand theory for insurance is well established, there has not been extensive study of the determinants of the demand automobile insurance in particular. This research will analyze factors that determine demand for automobile insurance in the United States by using data at the state level covering the period 1982 to 2001, which is more recent than previous research. Several previously untested financial and economic, demographic, and legal and political variables are added to the model in this research to better understand demand for automobile insurance. These variables include Add-on Laws, No-fault Laws, traffic density, population age, number of automobiles registered, gas tax, and federal spending on mass transit.; The results of this research should help policy makers determine the proper balance between voluntary and residual markets, provide factors that have an impact on demand and supply for automobile insurance, and provide suggestions to help alleviate affordability and availability problems. |
