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Surprising Selection Effects in the UK Car Insurance Market

Author

Listed:
  • Cannon, Edmund

    (University of Bristol)

  • Cipriani, Giam Pietro

    (University of Verona)

  • Bazar-Rosen, Katia

    (University of Bristol)

Abstract

We document a large and persistent anomaly in the UK car insurance market over the period 2012-13: insurance companies charged a higher premium for third-party (liability) insurance than comprehensive insurance (which includes third-party). Furthermore, some companies charged higher prices for comprehensive policies with larger deductibles. This evidence suggests both that consumers are too confused or too poorly informed to arbitrage and that sellers of car insurance do not implement the incentive-compatibility constraints at the heart of the adverse-selection model of insurance. This particular insurance market is much less sophisticated than that characterised by modern microeconomic theory.

Suggested Citation

  • Cannon, Edmund & Cipriani, Giam Pietro & Bazar-Rosen, Katia, 2014. "Surprising Selection Effects in the UK Car Insurance Market," IZA Discussion Papers 8172, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8172
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    References listed on IDEAS

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    More about this item

    Keywords

    bounded rationality; adverse selection; car insurance;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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