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Exposure to risk increases the excess of zero accident claims frequency in automobile insurance

Montserrat Guillen (), Ana Pérez-Marín (), Mercedes Ayuso () and Jens Perch Nielsen ()
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Montserrat Guillen: Riskcenter- IREA and Department of Econometrics, University of Barcelona, Av. Diagonal, 690, 08034. Barcelona, Spain
Ana Pérez-Marín: Riskcenter- IREA and Department of Econometrics, University of Barcelona, Av. Diagonal, 690, 08034. Barcelona, Spain
Mercedes Ayuso: Riskcenter- IREA and Department of Econometrics, University of Barcelona, Av. Diagonal, 690, 08034. Barcelona, Spain
Jens Perch Nielsen: Cass Business School, City, University of London, 106 Bunhill Row, London EC1Y 8TZ, United Kingdom.

No 201810, IREA Working Papers from University of Barcelona, Research Institute of Applied Economics

Abstract: Most automobile insurance databases contain a large number of policy holders with zero claims. This high frequency of zeros may reflect the fact that some insureds make little use of their vehicle, or that they do not wish to make a claim for small accidents in order to avoid an increase in their premium, but it might also be because of good driving. We analyse information on exposure to risk and driving habits using telematics data from a Pay-as-you-Drive sample of insureds. We include distance travelled per year as part of an offset in a zero- inflated Poisson model to predict the excess of zeros. We show the existence of a learning effect for large values of distance travelled, so that longer driving should result in higher premium, but there should be a discount for drivers that accumulate longer distances over time due to the increased proportion of zero claims. We confirm that speed limit violations and driving in urban areas increase the expected number of accident claims. We discuss how telematics information can be used to design better insurance and to improve traffic safety.

Keywords: Telematics; pay-as-you-drive; mileage. JEL classification:C35; C55; G22. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ias and nep-tre
Date: 2018-05, Revised 2018-05
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