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

Author

Listed:
  • Mercedes Ayuso

    (Universitat de Barcelona, Department of Econometrics, Statistics and Spanish Economy)

  • Lluís Bermúdez

    (Universitat de Barcelona, Department of Financial and Actuarial Mathematics)

  • Miguel Santolino

    (Universitat de Barcelona, Department of Econometrics, Statistics and Spanish Economy)

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.

Suggested Citation

  • Mercedes Ayuso & Lluís Bermúdez & Miguel Santolino, 2011. "“Influence of the claimant’s behavioural features on motor compensation outcomes”," IREA Working Papers 201108, University of Barcelona, Research Institute of Applied Economics, revised Jun 2011.
    • Handle: RePEc:ira:wpaper:201108
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    References listed on IDEAS

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    More about this item

    Keywords

    Risk aversion; Negotiation; Trial; Switching regression; Confrontation preference. JEL classification: D81; K41; J33;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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