The Incentive Effects of Increasing Per-Claim Deductible Contracts in Automobile Insurance
AbstractA new rating system of automobile insurance for vehicle damage in Taiwan was launched in 1996, introducing a deductible that increases with the number of claims. In this article, we provide a theoretical rationale for the existence of an increasing per-claim deductible system and show that the new system is most likely an optimal choice for those insured who tend to have lower claims probability when incentives are present. Using a unique dynamic data set, we are able to conduct a natural experiment to examine the incentive effects (both positive and negative) by looking at the change in claim tendency before and after switching between two deductible plans: an increasing per-claim deductible and a zero deductible. Our results provide direct evidence of the effects of deductible structures on claim behavior. Copyright The Journal of Risk and Insurance, 2007.
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Bibliographic InfoArticle provided by The American Risk and Insurance Association in its journal Journal of Risk & Insurance.
Volume (Year): 74 (2007)
Issue (Month): 2 ()
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Web page: http://www.wiley.com/bw/journal.asp?ref=0022-4367&site=1
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- Anthony Miyazaki, 2009. "Perceived Ethicality of Insurance Claim Fraud: Do Higher Deductibles Lead to Lower Ethical Standards?," Journal of Business Ethics, Springer, vol. 87(4), pages 589-598, July.
- Yarmukhamedov, Sherzod, 2013. "Empirical analysis of moral hazard: a study of a vehicle insurance tax reform," Working papers in Transport Economics 2013:14, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
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