Asymmetric Information in Automobile Insurance: Evidence from Driving Behavior
Vienna University of Economics and Business Administration
Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF)
March 1, 2013
We provide novel insights into the effects of private information in automobile insurance. Based on a unique data set of driving behavior we find direct evidence that private information has significant effects on contract choice and risk. The number of car rides (controlling for the distance driven) and the relative distance driven on weekends are significant risk factors. While the number of car rides and average speeding are negatively related to the level of third-party liability coverage, the number of car rides and the relative distance driven at night are positively related to the level of first-party insurance coverage. These results indicate multiple and counteracting effects of private information based on risk preferences and driving behavior.
Number of Pages in PDF File: 35
Keywords: telematics, insurance, asymmetric information
JEL Classification: D82, G22working papers series
Date posted: April 30, 2012 ; Last revised: March 7, 2013
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