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Pricing of Automobile Insurance Under Asymmetric Information: a Study on Panel Data

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  • Dahchour, Maki

    (Université Paris X-Nanterre)

  • Dionne, Georges

    (HEC Montreal, Canada Research Chair in Risk Management)

Abstract

This article proposes to highlight the informational content of the French bonus-malus scheme used in a posteriori pricing and to verify whether the automobile insurance pricing scheme is efficient in eliminating all residual asymmetric information in the risk categories constructed by insurers. The article expands the asymmetric information test developed by Dionne, Gouriéroux, and Vanasse (2001) to panel data. The data are from the Parc Automobile Sofres in France. An incomplete panel composed of 11,506 individuals was constructed over a three-year period (1995–1997). We show that the variables used by insurers in pricing automobile insurance in France efficiently account for asymmetric information. Moreover, the bonus-malus variable turns out to be significant in explaining both the individual distribution of accidents and the type of insurance coverage chosen. However, its absence does not affect the conclusion about the presence of residual asymmetric information.

Suggested Citation

  • Dahchour, Maki & Dionne, Georges, 2002. "Pricing of Automobile Insurance Under Asymmetric Information: a Study on Panel Data," Working Papers 01-6, HEC Montreal, Canada Research Chair in Risk Management.
    • Handle: RePEc:ris:crcrmw:2001_006
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    Cited by:

    1. Chris Robinson & Bingyong Zheng, 2010. "Moral hazard, insurance claims, and repeated insurance contracts," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(3), pages 967-993, August.

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    More about this item

    Keywords

    Asymmetric information; automobile insurance; bonus-malus; risk classification; panel data; state dependence; unobserved heterogeneity; random-effects probit; negative binomial distribution; road safety;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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