Influence of the claimant’s behavioural features on motor compensation outcomes

Mercedes Ayuso, Lluís Bermúdez () and Miguel Santolino ()
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Lluís Bermúdez: Universitat de Barcelona, Department of Financial and Actuarial Mathematics
Miguel Santolino: Universitat de Barcelona, Department of Econometrics, Statistics and Spanish Economy

No 201108, IREA Working Papers from University of Barcelona, Research Institute of Applied Economics

Abstract: The decision to settle a motor insurance claim by either negotiation or trial is analysed. This decision may depend on how risk and confrontation adverse or pessimistic the claimant is. The extent to which these behavioural features of the claimant might influence the final compensation amount are examined. An empirical analysis, fitting a switching regression model to a Spanish database, is conducted in order to analyze whether the choice of the conflict resolution procedure is endogenous to the compensation outcomes. The results show that compensations awarded by courts are always higher, although 95% of cases are settled by negotiation. We show that this is because claimants are adverse to risk and confrontation, and are pessimistic about their chances at trial. By contrast, insurers are risk /confrontation neutral and more objective in relation to the expected trial compensation. During the negotiation insurers accept to pay the subjective compensation values of claimants, since these values are lower than their estimates of compensations at trial.

Keywords: Risk aversion; Negotiation; Trial; Switching regression; Confrontation preference. JEL classification: D81; K41; J33 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2011-06, Revised 2011-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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