Do Insurance Companies Possess an Informational Monopoly? Empirical Evidence from Auto Insurance

26 Pages Posted: 18 Dec 2013

See all articles by Paul Kofman

Paul Kofman

The University of Melbourne

Greg Nini

Drexel University - Department of Finance

Date Written: December 2013

Abstract

This article investigates the impact of policyholder tenure on contractual relationships in nonlife insurance markets. For a sample of auto insurance policies, we find that average risk decreases with policyholder tenure, but the effect is entirely due to the impact of observable information. We reject the hypothesis that the incumbent insurer is privately learning faster about quality of their policyholders. We highlight the importance of a public signal regarding policyholders' claims experiences and suggest alternative explanations for the unconditional relationships in the data.

Suggested Citation

Kofman, Paul and Nini, Gregory, Do Insurance Companies Possess an Informational Monopoly? Empirical Evidence from Auto Insurance (December 2013). Journal of Risk and Insurance, Vol. 80, Issue 4, pp. 1001-1026, 2013. Available at SSRN: https://ssrn.com/abstract=2369101 or http://dx.doi.org/10.1111/j.1539-6975.2012.01487.x

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

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States

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