Empirical Evidence on Relationships in Insurance Markets

44 Pages Posted: 27 May 2010

See all articles by Paul Kofman

Paul Kofman

The University of Melbourne

Greg Nini

Drexel University - Department of Finance

Date Written: May 1, 2010

Abstract

This paper investigates the value of relationships in insurance markets. Theory predicts that policyholder tenure should be positively related to average profitability and negatively related to average risk, as an incumbent insurer exploits its information advantage to strategically retain a higher fraction of better risks at increasingly unfair prices. For a sample of Australian insurance policies, we find that unconditional average risk does decrease with policyholder tenure, but the effect is nearly entirely due to the impact of observable information. This suggests that the incumbent insurer is not learning any faster about their policyholders than its competitors.

Suggested Citation

Kofman, Paul and Nini, Gregory, Empirical Evidence on Relationships in Insurance Markets (May 1, 2010). Available at SSRN: https://ssrn.com/abstract=1616300 or http://dx.doi.org/10.2139/ssrn.1616300

Paul Kofman

The University of Melbourne ( email )

Faculty of Economics and Commerce
Department of Finance
Parkville, Victoria 3010
Australia
61 3 8344 3794 (Phone)

Gregory Nini (Contact Author)

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States

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