Commitment and automobile insurance regulation in France, Quebec and Japan

Information problems have a large role to play in insurance markets and the regulations governing these markets were in part designed to take such problems into account. Classification variables are usually the tools used to reduce adverse selection, whereas bonus-malus (or merit-rating) schemes are introduced because risk categories lack homogeneity or fairness and because such categories do not really take moral hazard into account. Recent research findings also highlight the role commitment plays in bolstering incentives when faced with moral hazard in a bonus-malus scheme. In this paper, we shall give a detailed analysis of two different automobile insurance markets: those of the province of Quebec, in Canada and France. We will also document the Japanese regulatory system and that of other countries in Europe. In France and Quebec, adverse selection does not seem to require tight regulation, but regulated commitment does seem to help control moral hazard in both insurance regimes. Finally, we will show that the deregulation of insurance was a major concern for Japanese government over the recent years.