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THE IMPORTANCE OF THE CHOICE OF TEST FOR FINDING EVIDENCE OF ASYMMETRIC INFORMATION

Published online by Cambridge University Press:  15 January 2014

Catherine Donnelly ,
Martin Englund  and
Jens Perch Nielsen
Catherine Donnelly*
Affiliation:
Department of Actuarial Mathematics and Statistics, and the Maxwell Institute for Mathematical Sciences, Heriot-Watt University, Edinburgh EH14 4AS, UK
Martin Englund
Affiliation:
Department of Economics and Business, Aarhus University, Denmark, and Codan Insurance, part of the RSA Group, Denmark E-mail: eld@codan.dk
Jens Perch Nielsen
Affiliation:
Cass Business School, City University London, 106 Bunhill Row, London EC1Y 8TZ, UK E-mail: Jens.Nielsen.1@city.ac.uk
*
E-mail: C.Donnelly@hw.ac.uk
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Abstract

We put one of the predictions of adverse-selection models to the test, using data from the Danish automobile insurance market: that there is a positive correlation between claims risk and insurance coverage. We can find a statistically significant insurance coverage--risk correlation when coverage is expressed relative to the insurance premium, but not when it is expressed in monetary terms.

Keywords

Adverse selectionmoral hazardautomobile insurancelearningbivariate probit
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 44 , Issue 2 , May 2014 , pp. 173 - 195
Copyright
Copyright © ASTIN Bulletin 2014 

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