IDEAS home Printed from
   My bibliography  Save this paper

Is the Market Classification of Risk Always Efficient? - Evidence from German Third Party Motor Insurance


  • Reimund Schwarze

    () (Department of Energy, Transportation, Environment, German Institute for Economic Research (DIW) Berlin)

  • Thomas Wein

    () (Institute of Economics, University of Lüneburg)


The efficiency of market-determined risk classification in automobile insurance is a lasting matter of controversy. It can be traced back to the 1950s (Muir, 1957) and received broad economic attention in the 1980s when spiralling car insurance premiums in the US were blamed on tariff regulations prohibiting the use of sex, age and location as risk characteristics (Blackmon/ Zeckhauser 1991, Cummins/ Tennyson 1992, Harrington/ Doerpinghaus 1993). In a mirroring move the EU saw a heated political and legal debate on the use of special tariffs for foreigners, in the 1980s, which resulted in a legal ban of ‘discriminatory’ tariffs for mandatory insurance schemes in many European countries. The latest blow against risk classification in car insurance comes with the EU Employment and Social Affairs’ draft directive on gender equality which proposes to prohibit gender specific calculation of all private insurance products, including non-mandatory branches such as life, private health or comprehensive car insurance.

Suggested Citation

  • Reimund Schwarze & Thomas Wein, 2005. "Is the Market Classification of Risk Always Efficient? - Evidence from German Third Party Motor Insurance," Working Paper Series in Economics 3, University of Lüneburg, Institute of Economics.
  • Handle: RePEc:lue:wpaper:3

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Lückgen, Ingo & Oberschachtsiek, Dirk & Sternberg, Rolf & Wagner, Joachim, 2004. "Nascent Entrepreneurs in German Regions: Evidence from the Regional Entrepreneurship Monitor (REM)," IZA Discussion Papers 1394, Institute for the Study of Labor (IZA).
    2. J. David Cummins & Sharon Tennyson, 1992. "Controlling Automobile Insurance Costs," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 95-115, Spring.
    3. Crocker, Keith J & Snow, Arthur, 1986. "The Efficiency Effects of Categorical Discrimination in the Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 321-344, April.
    4. Michael Hoy, 1984. "The Impact of Imperfectly Categorizing Risks on Income Inequality and Social Welfare," Canadian Journal of Economics, Canadian Economics Association, vol. 17(3), pages 557-568, August.
    5. Joachim Wagner, 2005. "Nascent and Infant Entrepreneurs in Germany. Evidence from the Regional Entrepreneurship Monitor (REM)," Working Paper Series in Economics 1, University of Lüneburg, Institute of Economics.
    6. Luigi Buzzacchi & Tommaso Valletti, 2005. "Strategic Price Discrimination in Compulsory Insurance Markets," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 30(1), pages 71-97, June.
    7. Blackmon, B Glenn, Jr & Zeckhauser, Richard, 1991. "Mispriced Equity: Regulated Rates for Auto Insurance in Massachusetts," American Economic Review, American Economic Association, vol. 81(2), pages 65-69, May.
    8. Hoy, Michael, 1988. "Risk Management and the Value of Symmetric Information in Insurance Markets," Economica, London School of Economics and Political Science, vol. 55(219), pages 355-364, August.
    9. Bond, Eric W & Crocker, Keith J, 1991. "Smoking, Skydiving, and Knitting: The Endogenous Categorization of Risks in Insurance Markets with Asymmetric Information," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 177-200, February.
    10. Michael Hoy, 1982. "Categorizing Risks in the Insurance Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 97(2), pages 321-336.
    11. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
    12. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. R. Guy Thomas, 2008. "Loss Coverage as a Public Policy Objective for Risk Classification Schemes," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(4), pages 997-1018.
    2. Donatella Porrini, 2015. "Risk Classification Efficiency and the Insurance Market Regulation," Risks, MDPI, Open Access Journal, vol. 3(4), pages 1-10, September.

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lue:wpaper:3. 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: (Joachim Wagner). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.