Working Papers, Swedish National Road & Transport Research Institute (VTI)
No 2010:1:
Does private information affect the insurance risk? Evidence from the automobile insurance market.
Sara Arvidsson ()
Abstract: We empirically investigate the effect of policyholders’
private information of risky traffic behavior on automobile insurance
coverage and ex post risk. We combine our insurance company’s information
with private information data that is not accessible to the insurance
company. We show that being unable to reject the null of zero correlation
is not necessarily consistent with symmetric information in the automobile
insurance market. Our results are twofold: In contrast to much of the
previous work we find a positive significant correlation for three groups
of policyholders, consistent with the adverse selection prediction. We
furthermore find that private information about risky traffic behavior
increases ex post risk while it both increases and decreases the demand for
extensive insurance. This supports our hypothesis that adverse and
propitious is present simultaneously in this market.
Keywords: Adverse selection; Moral hazard; Propitious selection; Insurance; (follow links to similar papers)
JEL-Codes: D82; (follow links to similar papers)
35 pages, January 12, 2010
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