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Moral hazard, insurance claims, and repeated insurance contracts

Author

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  • Chris Robinson
  • Bingyong Zheng

Abstract

The paper develops a simple model of repeated automobile insurance contracts, providing a framework for analyzing changes in aggregate insurance data in periods of changes that affect driver incentives. Experience rating of premiums gives drivers an incentive to exert effort to avoid accidents (ex ante moral hazard), and an incentive to hide accidents (ex post moral hazard). The empirical analysis, using data from the competitive insurance markets in Ontario and Alberta over a period of major legislative changes in Ontario, suggests that much of the recent decline in accidents in Ontario was due to an increased incentive to hide accidents. Le texte développe un modèle simple de contrats d'assurance‐automobile renouvelés, fournissant un cadre d'analyse des données d'assurance agrégées dans des périodes de changement qui affectent les incitations des chauffeurs. Un régime de primes cotées selon l'expérience donne aux chauffeurs une incitation à faire des efforts pour éviter les accidents (hasard moral ex ante) et une incitation à cacher qu'il y a eu accident (hasard moral ex post). L'analyse empirique utilisant les données recueillies dans les marchés d'assurance concurrentiels de l'Ontario et de l'Alberta (pour une période au cours de laquelle il y a eu des changements législatifs majeurs en Ontario) suggère qu'une bonne partie du déclin des accidents enregistré en Ontario a été attribuable à une incitation accrue à cacher les accidents.

Suggested Citation

  • Chris Robinson & Bingyong Zheng, 2010. "Moral hazard, insurance claims, and repeated insurance contracts," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(3), pages 967-993, August.
    • Handle: RePEc:wly:canjec:v:43:y:2010:i:3:p:967-993
    DOI: 10.1111/j.1540-5982.2010.01602.x
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    References listed on IDEAS

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    2. Wang, Di & Liu, Guangqiang & Xie, Linlin, 2023. "Can compulsory liability insurance reduce agency costs? Evidence from China," Research in International Business and Finance, Elsevier, vol. 65(C).
    3. Georges Dionne & Ying Liu, 2021. "Effects of Insurance Incentives on Road Safety: Evidence from a Natural Experiment in China," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(2), pages 453-477, April.
    4. Yang, Zhiqing & Liu, Xiaowen, 2022. "The impacts of compulsory food liability insurance policy on stock price crash risk: Evidence from Chinese food industry," Finance Research Letters, Elsevier, vol. 50(C).
    5. Sabau-Popa Claudia Diana & Bradea Ioana & Bolos Marcel Ioan & Delcea Camelia, 2015. "The Information Confidentiality And Cyber Security In Medical Institutions," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 855-864, July.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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