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1999 | Buch

Asymmetric Information In Automobile Insurance: An Overview Kapitel lesen Erstes Kapitel lesen

Automobile Insurance: Road Safety, New Drivers, Risks, Insurance Fraud and Regulation

herausgegeben von: Georges Dionne, Claire Laberge-Nadeau

Verlag: Springer US

Buchreihe : Catastrophe Modeling

Enthalten in: Professional Book Archive

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Über dieses Buch

Motor vehicle accidents are still a leading cause of death, even if the trend has somewhat declined over the past 20 years. Indeed, motor vehicle accidents are a significant cause of death in comparison with air and space transport accidents, homicides and even HIV infections, causes which are more often highlighted in the media. As shown in this book, motor vehicle accidents are particularly damaging to very young drivers.
The assessment of driving risks is a common concern for road transportation safety and the automobile insurance industry. In both cases, there is an awareness of the great losses resulting from the deaths, injuries and property damage caused by traffic accidents. Research is essential to counteract this public health threat, to assess the success or failure of countermeasures, and to solve the problems it generates in the insurance industry.
This book is for people concerned about road crashes (prevention and compensation) and about the insurance problems they pose - namely private and public institutional authorities, consultants, administrators, practitioners, and researchers interested in sharing the authors' experience in this domain. The book presents original contributions related to motor vehicle insurance and road safety. All papers have been evaluated by external referees. Four subjects are covered: 1) Automobile Insurance Pricing, Risks and Asymmetric Information; 2) Insurance Fraud; 3) Young Drivers: Licensing Policies, Evaluation and Risks; and 4) Road Insurance Regulation.

Inhaltsverzeichnis

Frontmatter
1. Asymmetric Information In Automobile Insurance: An Overview
Abstract
Modern insurance economics has been deeply influenced by the recent developments of contract theory. Our understanding of such crucial aspects as the design of optimal insurance contracts, the form of competition on insurance markets or the role of public regulation, just to name a few, systematically refers to the basic concepts of contract theory — moral hazard, adverse selection, commitment, renegotiation and others. Conversely, it is fair to say that insurance has been, and to a large extend still remains, one of the most important and promising field of empirical application for contract theory.
Pierre-André Chiappori
2. Evidence of Adverse Selection in Automobile Insurance Markets
Abstract
Adverse selection is potentially present in many markets. In automobile insurance, it is often documented that insured drivers have information not available to the insurer about their individual risks. This explains the presence of many instruments like risk classification based on observable characteristics (Hoy, 1982 and Crocker and Snow, 1985, 1986), deductibles (Rothschild and Stiglitz, 1976 and Wilson, 1977) and bonus-malus schemes (Dionne and Lasserre, 1985; Dionne and Vanasse, 1992 and Pinquet, 1998). But the presence of deductibles can also be documented by moral hazard (Winter, 1992) or simply by transaction costs proportional to the actuarial premium, and the bonus-malus scheme is often referred to moral hazard. It is then difficult to isolate a pure adverse selection effect from the data. However, the presence of adverse selection is necessary to obtain certain predictions that would not be obtained with only transaction costs and moral hazard.
Georges Dionne, Christian Gouriéroux, Charles Vanasse
3. Allowance for Hidden Information by Heterogeneous Models and Applications to Insurance Rating
Abstract
The analysis of individual risks in insurance raises problems that occur in any statistical analysis of longitudinal data. Considering insurance data, the endogeneous variables are severity variables (for instance: number and cost of claims, duration of compensations, and so on). The exogeneous variables of the current period can be first be used as rating factors in an a priori rating model. The allowance for the history of the policyholder in a rating model is more intricate, and it can be performed from two different approaches. They are related to interpretations of serial correlation for individual data that can be summarized in the following way.
Jean Pinquet
4. Bayesian Analysis of Road Accidents: A General Framework for The Multinomial Case
Abstract
An important aspect in road safety research concerns the development of analytical tools to identify road sites with high risk. Within a context of optimization subject to financial constraints, decisions have to be taken as to which sites should be considered for treatment or safety improvement. The most economically reasonable selection criterion is to select those sites which had the highest accident rate in the preceding year. This is a bad procedure because of the well known regression to the mean problem. Even if no remedial treatment is made, the number of accidents recorded at the same site in the following year will naturally decrease toward its temporal mean. In other word, very high accident rates should be viewed as outliers.
Denis Bolduc, Sylvie Bonin
5. Commercial Automobile Insurance: Should Fleet Policies Differ from Single Vehicle Plans?
Abstract
A “fleet” insurance policy covers a number of motor vehicles, usually five or more, owned by a business firm. The issue addressed in this paper is whether the design of such policies should differ from that of single-vehicle insurance plans. Specifically, I inquire whether the size of a fleet matters for the loss reimbursement schedules. The intuition is that, even over a single contract period (say a year), the loss experience for a large fleet may be expected to provide relatively precise information with respect to a firm’s risk class or risk management policies. Presumably, this should make it possible to provide better insurance coverage, while maintaining the screening of bad risks and the incentives to reduce accident frequencies.
Claude Fluet
6. Costly State Falsification or Verification? Theory and Evidence from Bodily Injury Liability Claims
Abstract
The impact of private information on insurance markets has long been appreciated by both economists and practitioners. Spurred by the initial presentation of the problem contained in Akerlof’s (1970) examination of the market for lemons, analyses of environments in which insureds possessed asymmetric information about their likelihood of suffering insurable losses have addressed the issues of adverse selection (Rothschild and Stiglitz, 1976) and moral hazard (Shavell, 1979). More recently, the burgeoning problems associated with fraud in insurance claiming have led economists to consider an alternative form of informational asymmetry in which the private information held by the insured individuals involved the actual magnitude of an economic loss. The resulting analyses may be dichotomized into two distinct lines of inquiry, which are known in the literature as the problems of costly state verification and falsification, respectively.
Keith J. Crocker, Sharon Tennyson
7. The Frequency of Excess Claims for Automobile Personal Injuries
Abstract
Over the past decade and a half, automobile insurance premiums, particularly for personal injury coverages, have grown rapidly across the country. Stiff increases in insurance premiums are burdensome for everyone1. Forty-nine percent of the respondents to a recent national survey thought the affordability of auto insurance was a problem2. High insurance premiums are especially problematic for low-income populations. One study found that less affluent motorists are now spending over thirty percent of their annual household incomes on automobile insurance3. Moreover, high insurance premiums are an incentive to drive uninsured, thus exacerbating the uninsured motorist problem.
Allan F. Abrahamse, Stephen J. Carroll
8. When is The Proportion of Criminal Elements Irrelevant? A Study of Insurance Fraud When Insurers Cannot Commit
Abstract
Fraud is recognized as a major problem in the insurance industry1 by practitioners and academics alike. To curb fraudulent behavior on the part of policyholders, not only have some insurers joined hands, but the government is also helping. The scientific literature (see Dionne, Gibbens and St-Michel, 1993; Weisberg and Derrig, 1991; and Hoyt, 1990 for further details) recognizes many types of insurance fraud, amongst which are build-up (exaggerating the loss amount) and planned fraud (reporting a loss when none occurred). Although, both of these types of fraud are important, for simplicity this paper concentrates only on planned fraud. Dionne, Gibbens and St-Michel (1993) report that at the minimum, fraudulent claims represent at least thirteen percent of all claims. This number does not seem exaggerated considering that one in five Americans believe it is okay to pad claims to make up for previously paid premiums or a policy’s deductible2.
Martin Boyer
9. Insurance Fraud Estimation: More Evidence from the Quebec Automobile Insurance Industry
Abstract
This article follows a previous study on insurance fraud by Dionne and Belhadji (1996). It uses the same data bank. Eighteen companies have contributed to the survey of this study, representing 70% of the Quebec automobile insurance market in 1994. Claim adjusters randomly reopened 2,509 closed files, or 2,772 coverages, to evaluate the significance of insurance fraud. This study was financed by the Insurance Bureau of Canada.
Louis Caron, Georges Dionne
10. The Société De L’Assurance Automobile Du Québec — An Integrated Model of Action to Insure and Protect People From the Risks Inherent in Use of the Road
Abstract
First, I wish to thank the organizers for inviting me to this international conference which gathers researchers and representatives from the fields of insurance, economics, and road safety.
Jean-Yves Gagnon
11. They Cheat, You Pay!
Abstract
The Insurance Bureau of Canada (IBC) is the national trade association representing private property and casualty (P&C) insurers. IBC member companies provide about 75% of the non-government P&C insurance sold in Canada. As well, there are more than 40 IBC associate member companies serving the Industry. IBC works with its members to improve communication with public and government, the news media and other industry associations.
Raymond Medza
12. Graduated Licensing in Québec: The Search for Balance Between Mobility and Safety
Abstract
The automobile has become an integral part of most people’s daily life and often is an indispensable element in their mobility. With a population of slightly over seven million, Québec has more than 4.2 million driver’s licence holders who collectively cover some 75 billion kilometres annually. The commonplace observation is that this mobility exacts a heavy price in terms of loss of life and suffering for accident victims and their families. Notwithstanding the substantial decline in the accident toll during the last 20 years from more than 2,200 fatalities in 1973, the cost in lives is still close to 900 and another 6,000 people are severly injured on the road each year.
Claude Dussault, Patrice Letendre
13. An Evaluation of the Effects on Crashes of the 1991 Legislative Reform on New Licensees in Quebec
Abstract
Any learning task, particularly a complex one such as driving an automobile, needs time and experience to arrive at a good performance.
Urs Maag, Georges Dionne, Denise Desjardins, Stéphane Messier, Claire Laberge-Nadeau
14. Licensing Policies For Young Drivers In The United States
Abstract
In the United States, each of the 50 states and the District of Columbia has a different licensing system for passenger vehicle operation. There is substantial variation, but in general, easy licensing is allowed at an early age. The typical licensing age is 16, although the minimum age for a regular license varies from 14 to 17: One state (South Dakota) licenses at age 14, six states at age 15, 42 states and the District of Columbia at age 16, and one state (New Jersey) at age 17. Countries such as Canada and Australia also generally license at age 16, whereas most European countries withhold passenger vehicle licensure until age 17, or more typically, age 18 (Laberge-Nadeau, Maag, and Bourbeau, 1992). European countries also differ from the United States in that licenses are relatively expensive, and licensing exams more difficult.
Allan F. Williams
15. Reducing the Risk of New Drivers Through Legislation and Regulation
Abstract
New drivers, especially young ones, have a higher risk of aollision than more experienced drivers (Mayhew and Simpson, 1990; Mayhew and Simpson, 1995). Historically, the mainstay of prevention strategies to address this serious road safety and social problem has been some form of licensing that requires beginners to qualify for a license before achieving the privilege of operating a motor vehicle on public highways. Typically, they must meet certain minimal driving standards deemed necessary to operate a motor vehicle safety in traffic. The applicant is tested for knowledge about the rules of the road, visual acuity, and skills in operating a vehicle.
Dan Mayhew
16. Evaluation of the Accompanied Driver Training by Means of A Markov Chain
Abstract
Analysis of the risk of damage-only and injury accidents occurring to novice drivers of passenger cars in their first years of driving as licence holders must be based on suitable probabilistic models of risk in order to be able to assess the influence of driver training on the accident record. In France, officially since 19911, the conventional driving school system has been supplemented by accompanied driving, which is described in detail Annex I. The assessment of the effectiveness of this new type of training has been the subject of a number of studies which have been listed by Y. Page (1995). Partial evaluations have been conducted on a sample of young drivers in the pilot Département of Les Yvelines, on small samples drawn from insurance company files and on a randomly selected sample which contained an equal number of drivers who had undergone both types of training. The techniques used to model risk were either highly sophisticated using two stage models, one of which dealt with the choice of type of training and the other with the distance driven before an accident occurred, or extremely simple involving estimates of accident rates for each driver*year.
Sylvain Lassarre, Pierre-Alain Hoyau
17. Risky Driving by Youth
Abstract
Young drivers are a far greater risk to themselves and others on the highway than are adults. Until they have jobs, and cars of their own, their contribution to the accident picture is moderated somewhat by the relatively low mileage they compile. Yet, on a per-mile basis, the accident rate is at its peak the moment the youthful driver takes to the road, with 16-year olds in the U.S. having ten times the accident rate of mature adults (NHTSA, 1996). Young males greatly outnumber their female counterparts in fatal and injury accidents, particularly night time fatals (Massie, Campbell, and Williams, 1995).
A. James McKnight
18. Young People, Alcohol and Risk
Abstract
The decision to drive under the influence of alcohol (or, for a passenger, to get into a vehicle with a driver who has been drinking) is subject to various determinisms. Some are deeply rooted in the psychological background of the individual and his lifestyle. The relationship of an individual to alcohol, like any psychotropic substance and dependency, originates in the early stages of development. In this work we will focus on those which operate in the immediate, in terms of accidents and offences. The various phenomena that lead a young person to return home on weekend evenings under the influence of drink are, in chronological order:
1)
a decision to spend an evening in a place where drink is sold;
 
2)
the management of alcohol consumption during the evening (quantity, how often, food intake);
 
3)
deciding whether or not to drive;
 
4)
once this decision has been made, the behavioural consequences of this decision (risk-taking, compensation of risk).
 
Jean-Paul Assailly
19. No-Fault Automobile Insurance and Accident Severity: Lessons Still To Be Learned
Abstract
Even before no-fault automobile insurance was first introduced in North America in 1971, it was a topic that generated a tremendous amount of research and debate. Since then, some sixteen states have introduced no-fault provisions (three have since repealed them), and four Canadian provinces have done likewise. At the moment, the province of British Columbia is seriously considering following suit. Thus, this topic still commands a considerable amount attention by academics and public policy makers alike.
Rose Anne Devlin
20. The Incentive Effects of No Fault Automobile Insurance
Abstract
Automobile insurance costs have become a potent political issue in the United States. In recent years, the auto insurance consumer price index (CPI) has grown at an annual rate considerably higher than the all items CPI. This high inflation occurred during a period when auto accident rates were declining (U.S. Department of Commerce, 1996, National Association of Independent Insurers, 1996). The result has been growing dissatisfaction among consumers and increased pressure on insurers from legislators and regulators. In some states, more stringent regulation has led to inadequate prices and declining profits, threatening the stability of the market.
J. David Cummins, Mary A. Weiss
21. Estimating The Effects of “No-Pay, No-Play” Auto Insurance Plans on the Costs of Auto Insurance: The Effects Of Proposition 213
Abstract
“No pay, no play” auto insurance plans have become the focus of widespread policy debate. Four states — California, Louisiana, Michigan, and New Jersey — have enacted laws restricting compensation to uninsured motorists. Legislation that would limit uninsured motorists’ rights to recovery for losses resulting from automobile accidents was introduced in at least 13 other states during 1997. The issue will almost certainly be revisited many of the states that considered, but did not adopt, some form of no pay, no play in 1997. It is equally likely that limits on uninsured motorists’ compensation will be the topic of future debates in many of the states that have not yet addressed the issue.
Stephen J. Carroll, Allan F. Abrahamse
22. Analysis of The Economic Impact of Medical and Optometric Driving Standards on Costs Incurred by Trucking Firms and on the Social Costs of Traffic Accidents
Abstract
The main goal of this research is to measure the effect of certain medical and optometric standards on traffic safety, on the private costs of trucking firms, and on the total or social costs incurred. More specifically, we want to check whether existing standards are linked to the significant factors used in calculating the rates of trucking accidents1 (frequency and severity). In other words, do truck drivers with diabetes mellitus, coronary disease, visual impairment, or high blood pressure have a significantly higher accident rate and more serious accidents than drivers who are officially in good health. We also want to check what impact these potentially higher levels of the frequency and severity of accidents may have on the reimbursements made by private insurance companies and on the net costs for trucking firms. The social or total costs for society are also included in our research protocol. The data from the study have made it possible to establish statistical links between truckers’ risk exposure and their accident rates. The results of this research are relevant to traffic safety regulations, because trucking accidents generate important externalities for society.
Georges Dionne, Claire Laberge-Nadeau, Denise Desjardins, Stéphane Messier, Urs Maag
Metadaten
Titel
Automobile Insurance: Road Safety, New Drivers, Risks, Insurance Fraud and Regulation
herausgegeben von
Georges Dionne
Claire Laberge-Nadeau
Copyright-Jahr
1999
Verlag
Springer US
Electronic ISBN
978-1-4615-4058-8
Print ISBN
978-1-4613-6817-5
DOI
https://doi.org/10.1007/978-1-4615-4058-8