Asymmetric Information in the Market for Automotive Insurance: Evidence from Germany

32 Pages Posted: 22 Sep 2012 Last revised: 30 Oct 2012

Martin Spindler

Max Planck Institute for Social Law and Social Policy; MEA

Joachim K. Winter

Ludwig Maximilian University of Munich; CESifo (Center for Economic Studies and Ifo Institute); Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA); Deutsche Bundesbank - Research Department

Steffen Hagmayer

HUK Coburg Insurance Group

Date Written: June 21, 2012

Abstract

Asymmetric information is an important phenomenon in insurance markets, but the empirical evidence on the extent of adverse selection and moral hazard is mixed. Because of its implications for pricing, contract design, and regulation, it is crucial to test for asymmetric information in specific insurance markets.

In this paper, we analyse a recent data set on automobile insurance in Germany, the largest such market in Europe. We present and compare a variety of statistical testing procedures. We find that the extent of asymmetric information depends on coverage levels and on the specific risks covered which enhances the previous literature. Within the framework of Chiappori et al. (2006), we also test whether drivers have realistic expectations concerning their loss distribution, and we analyze the market structure.

Keywords: Asymmetric information, automobile insurance, parametric tests, imperfect competition

JEL Classification: D82, C12, G22

Suggested Citation

Spindler, Martin and Winter, Joachim K. and Hagmayer, Steffen, Asymmetric Information in the Market for Automotive Insurance: Evidence from Germany (June 21, 2012). MEA Discussion Paper No. 259-2012. Available at SSRN: https://ssrn.com/abstract=2150044 or http://dx.doi.org/10.2139/ssrn.2150044

Martin Spindler (Contact Author)

Max Planck Institute for Social Law and Social Policy ( email )

Amalienstraße 33
München, 80799
Germany

MEA ( email )

Amalienstrasse 33
Munich, 80799
Germany

Joachim K. Winter

Ludwig Maximilian University of Munich ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany

Deutsche Bundesbank - Research Department ( email )

PO Box 10 06 02
D60006 Frankfurt
Germany

Steffen Hagmayer

HUK Coburg Insurance Group ( email )

Coburg
Germany

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