Asymmetric Information in the Market for Automobile Insurance: Evidence from Germany

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 ofits implications for pricing, contract design, and regulation, it is crucial to test for asymmetric information in speci c insurance markets. In this paper, we analyze a recent data set onautomobile 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 informationdepends on coverage levels and on the speci c risks covered which enhances the previous literature. Within the framework of Chiappori et al. (2006), we also test whether drivers haverealistic expectations concerning their loss distribution, and we analyze the market structure.     «

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 ofits implications for pricing, contract design, and regulation, it is crucial to test for asymmetric information in speci c insurance markets. In this paper, we analyze a recent data set onautomobile insurance in Germany, the largest such market in Europe. We present and compare a variety of statistical testing procedures. We fi...     »