Asymmetric Information, Self-selection, and Pricing of Insurance Contracts: The Simple No-Claims Case

Catherine Donnelly, Martin Englund, Jens Perch Nielsen and Carsten Tanggaard

Journal of Risk & Insurance, 2014, vol. 81, issue 4, 757-780

Abstract: type="main" xml:lang="en">

This article presents an optional bonus-malus contract based on a priori risk classification of the underlying insurance contract. By inducing self-selection, the purchase of the bonus-malus contract can be used as a screening device. This gives an even better pricing performance than both an experience rating scheme and a classical no-claims bonus system. An application to the Danish automobile insurance market is considered.

Date: 2014
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