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

Martin Spindler, Joachim Winter () and Steffen Hagmayer

Journal of Risk & Insurance, 2014, vol. 81, issue 4, 781-801

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

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 specific insurance markets. In this article, 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 specific 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.

Date: 2014
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Working Paper: Asymmetric Information in the Market for Automobile Insurance: Evidence from Germany (2012)
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