Pricing of Automobile Insurance Under Asymmetric Information: a Study on Panel Data

Maki Dahchour and Georges Dionne ()
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Maki Dahchour: Université Paris X-Nanterre

No 01-6, Working Papers from HEC Montreal, Canada Research Chair in Risk Management

Abstract: This article proposes to highlight the informational content of the French bonus-malus scheme used in a posteriori pricing and to verify whether the automobile insurance pricing scheme is efficient in eliminating all residual asymmetric information in the risk categories constructed by insurers. The article expands the asymmetric information test developed by Dionne, Gouriéroux, and Vanasse (2001) to panel data. The data are from the Parc Automobile Sofres in France. An incomplete panel composed of 11,506 individuals was constructed over a three-year period (1995–1997). We show that the variables used by insurers in pricing automobile insurance in France efficiently account for asymmetric information. Moreover, the bonus-malus variable turns out to be significant in explaining both the individual distribution of accidents and the type of insurance coverage chosen. However, its absence does not affect the conclusion about the presence of residual asymmetric information.

Keywords: Asymmetric information; automobile insurance; bonus-malus; risk classification; panel data; state dependence; unobserved heterogeneity; random-effects probit; negative binomial distribution; road safety (search for similar items in EconPapers)
JEL-codes: C23 D80 G22 L51 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2002-05-01
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Working Paper: Pricing of Automobile Insurance Under Asymmetric Information: a Study on Panel Data (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:crcrmw:2001_006

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