Automobile Insurance Ratemaking in the Presence of Asymmetrical Information

Georges Dionne () and C Vanasse

Journal of Applied Econometrics, 1992, vol. 7, issue 2, 149-65

Abstract: Automobile insurance is an example of a market where multi-period contracts are observed. This form of contract can be justified by asymmetrical information between the insurer and the insured. Insurers use risk classification together with bonus-malus systems. In this paper the authors show that the actual methodology for the integration of these two approaches can lead to inconsistencies. They develop a statistical model that adequately integrates risk classification and experience rating. For this purpose they present Poisson and negative binomial models with regression component in order to use all available information in the estimation of accident distribution. A bonus-malus system which integrates a priori and a posteriori information on an individual basis is proposed, and insurance premium tables are derived as a function of time, past accidents, and the significant variables in the regression. Statistical results were obtained from a sample of 19,013 drivers. Copyright 1992 by John Wiley & Sons, Ltd.

Date: 1992
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Related works:
Working Paper: Automobile Insurance Ratemaking in the Presence of Asymmetric Information (1988)
Working Paper: AUTOMOBILE INSURANCE RATEMAKING IN THE PRESENCE OF ASYMMETRIC INFORMATION (1988)
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