• norsk
    • English
  • English 
    • norsk
    • English
  • Login
View Item 
  •   Home
  • Norges Handelshøyskole
  • Department of Economics
  • Discussion papers (SAM)
  • View Item
  •   Home
  • Norges Handelshøyskole
  • Department of Economics
  • Discussion papers (SAM)
  • View Item
JavaScript is disabled for your browser. Some features of this site may not work without it.

Asymmetric information : evidence from the home insurance market

Aarbu, Karl Ove
Working paper
Thumbnail
View/Open
dp2010-19.pdf (417.7Kb)
URI
http://hdl.handle.net/11250/163230
Date
2010-08
Metadata
Show full item record
Collections
  • Discussion papers (SAM) [579]
Abstract
In this paper I test whether asymmetric information is present in the home insurance market. To

detect the existence of asymmetric information I apply the so-called positive correlation test to a

dataset containing approximately 500 000 home insurance contracts gathered from a Norwegian

insurer. In addition to the standard formulations of the positive correlation test I propose a

method that encompasses joint modelling of frequency and severity. The results from these

formulations show that frequency of claims increases in cover while claim costs are independent

of cover. Asymmetric information may be driven by adverse selection or moral hazard and the

empirical insurance contract literature has suggested different ways to disentangle these. I suggest

two methods that can distinguish between these two possible explanations. The first method

utilizes detailed claim information that allows me to separate out claims that most likely are

driven by moral hazard. Second, I also conduct an instrumental variable regression that utilizes

an exogenous reform that had an effect on the insurance price in this market. Both approaches

indicate that adverse selection is the prime driver of the information problem. In a final step, I

test whether risk aversion affects the results from the positive correlation test. Through detailed

socio-economic information (SES) I construct proxies for risk aversion. These proxies turn out

to be very important for understanding deductible choice but only marginally important for

claim probability. The information problem increases when I control for risk aversion –

indicating a small omitted variable bias in the positive correlation test.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2010:19

Contact Us | Send Feedback

Privacy policy
DSpace software copyright © 2002-2019  DuraSpace

Service from  Unit
 

 

Browse

ArchiveCommunities & CollectionsBy Issue DateAuthorsTitlesSubjectsDocument TypesJournalsThis CollectionBy Issue DateAuthorsTitlesSubjectsDocument TypesJournals

My Account

Login

Statistics

View Usage Statistics

Contact Us | Send Feedback

Privacy policy
DSpace software copyright © 2002-2019  DuraSpace

Service from  Unit