Does private information affect the insurance risk? Evidence from the automobile insurance market
This paper empirically investigates the effect of policyholders’ private information about risky traffic behavior on automobile insurance coverage and ex post risk. It combines insurance company information with the policyholders’ private information on risky traffic behavior (traffic violations) that is not accessible to the insurance company. It is demonstrated that being unable to reject the null of zero correlation is not consistent with symmetric information in the automobile insurance market. A positive significant correlation for three out of ten groups of new policyholders is found, consistent with the adverse selection/moral hazard prediction. Besides, private information about risky traffic behavior increases ex post risk while it both increases and reduces the demand for extensive insurance. Our conclusion is that the ambiguity of previous findings in the automobile insurance market may be explained by that high risks have different demand for extensive insurance coverage.
|Date of creation:||12 Jan 2010|
|Date of revision:||03 Feb 2011|
|Contact details of provider:|| Postal: |
Phone: +46-13-20 40 00
Fax: +46-13-14 14 36
Web page: http://www.vti.se/tek
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:hhs:vtiwps:2010_001. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mats Berggren)
If references are entirely missing, you can add them using this form.