Asymmetric Information in Automobile Insurance: Evidence from Driving Behavior
38 Pages Posted: 12 Oct 2016 Last revised: 5 Dec 2018
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Asymmetric Information in Automobile Insurance: Evidence from Driving Behavior
Date Written: December 3, 2018
Abstract
Based on a unique data set of driving behavior we test whether private information in driving characteristics has significant effects on contract choice and risk in automobile insurance. We define a driving-factor based on overall distance driven, number of car rides, and speeding. Using local weather conditions, we account for the endogeneity of the driving-factor. While this driving-factor has an effect on risk, there is no significant evidence for selection effects in the level of third-party liability and first-party insurance coverage.
Keywords: private information, automobile insurance, driving behavior, telematic data, pay-as-you-drive insurance, endogeneity, sample selection
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