Do the Better Insured Cause More Damage? Testing for Asymmetric Information in Car Insurance
39 Pages Posted: 3 Jan 2014
Date Written: December 31, 2013
Abstract
This paper tests for the presence of asymmetric information in Dutch car insurance among senior drivers using several non-parametric tests based on conditional-correlation approach. Since asymmetric information implies that more comprehensive coverage is associated with higher risk, we examine whether the better insured have a higher frequency of claims or cause more severe accidents. Using data on claim occurrences, incurred losses and written premiums, and controlling for the insureds' experience rating, we do not find any evidence of asymmetric information in this market.
Keywords: car insurance, asymmetric information, adverse selection, moral hazard, conditional correlation, non-parametric tests
JEL Classification: D82, G22
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