Separating Moral Hazard from Adverse Selection and Learning in Automobile Insurance: Longitudinal Evidence from France

Canada Research Chair in Risk Management Working Paper No. 04-05

47 Pages Posted: 1 Sep 2004

See all articles by Georges Dionne

Georges Dionne

HEC Montreal - Department of Finance

Pierre-Carl Michaud

University of Quebec at Montreal (UQAM) - Department of Economics; Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPÉE); RAND Corporation, Labor and Population; IZA Institute of Labor Economics; Netspar

Maki Dahchour

Aviva Canada - National Personal Lines

Multiple version iconThere are 2 versions of this paper

Date Written: August 26, 2004

Abstract

The identification of information problems in different markets is a challenging issue in the economic literature. This paper performs tests of residual asymmetric information in the French automobile insurance market for the 1995-1997 period. This market is characterized by the presence of a regulated experience-rating scheme (bonus-malus). Contract choices are strongly associated with the bonus-malus of policyholders. We have access to longitudinal survey data with dynamic information both on claims and accidents. We propose a causality test to distinguish pathways through which a positive correlation arises between contract choice and accidents. We find evidence of moral hazard among a sub-group of policyholders with significant driving experience (5-15 years). We distinguish this moral hazard estimate from adverse selection and learning. Policyholders with less experience have a combination of learning and moral hazard, whereas no residual information problem is found for policyholders with more than 15 years of experience.

Keywords: Automobile insurance, road safety, asymmetric information, experience rating, moral hazard, adverse selection, dynamic panel data models, Granger causality test

JEL Classification: D80, G22, C23, L51

Suggested Citation

Dionne, Georges and Michaud, Pierre-Carl and Dahchour, Maki, Separating Moral Hazard from Adverse Selection and Learning in Automobile Insurance: Longitudinal Evidence from France (August 26, 2004). Canada Research Chair in Risk Management Working Paper No. 04-05, Available at SSRN: https://ssrn.com/abstract=583063 or http://dx.doi.org/10.2139/ssrn.583063

Georges Dionne (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-6596 (Phone)
514-340-5019 (Fax)

HOME PAGE: http://www.hec.ca/gestiondesrisques/

Pierre-Carl Michaud

University of Quebec at Montreal (UQAM) - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada

Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPÉE) ( email )

Pavillon De Sève
Ste-Foy, Quebec G1K 7P4
Canada

RAND Corporation, Labor and Population ( email )

Santa Monica, CA 90407-2138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Maki Dahchour

Aviva Canada - National Personal Lines ( email )

2206 Eglinton Avenue East
Scarborough, Ontario M1L 4S8
Canada

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
530
Abstract Views
5,970
rank
36,235
PlumX Metrics