Asymmetric Information in the Market for Automotive Insurance: Evidence from Germany
Max Planck Institute for Social Law and Social Policy; MEA
Joachim K. Winter
Ludwig Maximilian University of Munich
HUK Coburg Insurance Group
June 21, 2012
MEA Discussion Paper No. 259-2012
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.
Number of Pages in PDF File: 32
Keywords: Asymmetric information, automobile insurance, parametric tests, imperfect competition
JEL Classification: D82, C12, G22
Date posted: September 22, 2012 ; Last revised: October 30, 2012