Moral Hazard in Insurance Claiming from a Korean Natural Experiment

Bong-Joo Lee and Dae-Hwan Kim
Additional contact information
Bong-Joo Lee: Department of Business, School of Management, Kyung Hee University, 1 Hoegi-dong, Dongdaemun-gu, Seoul 130-701, Republic of Korea
Dae-Hwan Kim: Department of Economics, Dong-A University, 2ga, Bumin-Dong, Seo-gu, Busan 602-760, Republic of Korea

The Geneva Papers on Risk and Insurance - Issues and Practice, 2016, vol. 41, issue 3, 455-467

Abstract: This paper presents evidence on moral hazard in auto insurance using a panel data set on all auto insurance companies in Korea. In January 2010, Korean financial regulatory authorities suddenly changed the automobile bonus-malus system such that the threshold of the premium surcharge for collision coverage was increased by 300 per cent, while insured parties’ payments of loss remains unchanged. One year later, however, claimants were required to bear 20 per cent of the loss. This sudden and exogenous regulatory change provides an ideal environment to analyse moral hazard because of the natural setting of the experiment. The empirical results obtained through a fixed-effects model indicate that a rise in the threshold led to a rapid increase in the loss ratio, and the subsequent imposition of coinsurance requirements decreased the loss ratio even after controlling for the number of accidents and claims.

Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.palgrave-journals.com/gpp/journal/v41/n3/pdf/gpp201533a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/gpp/journal/v41/n3/full/gpp201533a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:gpprii:v:41:y:2016:i:3:p:455-467

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41288/PS2

Access Statistics for this article

The Geneva Papers on Risk and Insurance - Issues and Practice is currently edited by Christophe Courbage

More articles in The Geneva Papers on Risk and Insurance - Issues and Practice from Palgrave Macmillan, The Geneva Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().