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Asymmetric Information in the Market for Automobile Insurance: Evidence from Germany

Author

Listed:
  • Spindler, Martin
  • Winter, Joachim
  • Hagmayer, Steffen

    (Munich Center for the Economics of Aging (MEA))

Abstract
Asymmetric information is an important phenomenon in insurance markets, but the empirical evidence on the extent of adverse selection and moral hazard is mixed. Because of its implications for pricing, contract design, and regulation, it is crucial to test for asymmetric information in speci c insurance markets. In this paper, we analyze a recent data set on automobile insurance in Germany, the largest such market in Europe. We present and compare a variety of statistical testing procedures. We find that the extent of asymmetric information depends on coverage levels and on the speci c risks covered which enhances the previous literature. Within the framework of Chiappori et al. (2006), we also test whether drivers have realistic expectations concerning their loss distribution, and we analyze the market structure.

Suggested Citation

  • Spindler, Martin & Winter, Joachim & Hagmayer, Steffen, 2012. "Asymmetric Information in the Market for Automobile Insurance: Evidence from Germany," MEA discussion paper series 201208, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    • Handle: RePEc:mea:meawpa:201208
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    References listed on IDEAS

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    Citations

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    Cited by:

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    2. Peng, Sheng-Chang & Li, Chu-Shiu, 2024. "Bundled insurance coverage and asymmetric information: Claim patterns of automobile theft insurance in Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 84(C).
    3. Yen-Chih Chen & Wen-Yen Hsu & Carol Troy, 2024. "Unpriced and unseen: private information and taxi insurance purchases in Taiwan," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 49(4), pages 831-867, October.
    4. Ben‐jiang Ma & Jing‐yu Ye & Yuan‐ji Huang & Muhammad Farhan Bashir, 2020. "Research of two‐period insurance contract model with a low compensation period under adverse selection," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(3), pages 293-307, April.
    5. Feng Gao & Michael R. Powers & Jun Wang, 2017. "Decomposing Asymmetric Information in China's Automobile Insurance Market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(4), pages 1269-1293, December.
    6. Martin Eling & Ruo Jia, 2017. "Recent Research Developments Affecting Nonlife Insurance—The CAS Risk Premium Project 2014 Update," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 20(1), pages 63-77, March.
    7. David Rowell & Son Nghiem & Luke B Connelly, 2017. "Two Tests for Ex Ante Moral Hazard in a Market for Automobile Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(4), pages 1103-1126, December.
    8. Casper H. de Jong, 2021. "Risk classification and the balance of information in insurance; an alternative interpretation of the evidence," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 24(4), pages 445-461, December.
    9. Vijay Aseervatham & Christoph Lex & Spindler, Martin, 2014. "How do unisex rating regulations affect gender differences in insurance premiums?," MEA discussion paper series 201416, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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