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Effects of Insurance Incentives on Road Safety: Evidence from a Natural Experiment in China

Georges Dionne and Ying Liu ()
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Ying Liu: Shandong University, Postal: No 27, Shanda South Road, Jinan, China, 250100

No 17-1, Working Papers from HEC Montreal, Canada Research Chair in Risk Management

Abstract: We investigate the incentive effects of insurance experience rating on road safety by evaluating the claim frequency following a regulatory reform introduced in a pilot city of China. Our contribution to the growing literature on moral hazard is to offer a neat identification of a causal effect of experience rating on road safety by employing the differences-in-differences methodology in the framework of a natural experiment. The pre-treatment placebo test corroborates the assumption that the pilot city and the control city share the same pre-reform time trends in claims. We find that basing insurance pricing on traffic violations reduces claim frequency significantly. These results are robust to the inclusion of vehicle controls, alternative definitions of claim frequency, two placebo experiment tests, and several robustness checks. The effects of basing pricing on past claims are not significant.

Keywords: Insurance incentives; experience rating; road safety; natural experiment; China; traffic violation; past claim; moral hazard. (search for similar items in EconPapers)
JEL-codes: C33 C35 D81 D82 G22 R41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp, nep-ias, nep-rmg, nep-tre and nep-ure
Date: 2017-03-15
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