Predictors of customer loyalty in automobile insurance: the role of private information in risky driving behavior and claim history

Download
Sara Arvidsson

Contract relevant information asymmetries are known to cause inefficiencies in markets. The information asymmetry is largest in the beginning of the customer insurer relationship but reduces over time; the longer a policyholder stays with the insurer the more the insurer learns about the policyholder’s risk. Two important characteristics of the market studied here imply that the information asymmetry may not be reduced for all policyholders. First, insurers do not have access to traffic violations, which are predictors of risk since policyholders with traffic violations are more likely to report a claim. Second, the insurers do not share information, such as previous claims, which means that the policyholder can flee a poor claim record by switching insurer. Hence, there may be a selection of high risk customers who switch insurer more often, such that the information asymmetry in this group is never reduced. To test this, we compare information asymmetries in two groups of policyholders; new customers who stay with the insurer for a period or less (short term), and long-term customers who stay with the insurer for several periods (loyal). The results indicate that departing policyholders are disproportionately high risks that constitute an adverse selection of risks, while loyal policyholders constitute a propitious (favorable) selection of risks.

Older version: http://swopec.hhs.se/vtiwps/abs/vtiwps2011_002.htm

LATEST NEWS


2017-11-30

Millions for research into maritime transport and the environment

Maritime transport is a major source of emissions of harmful air pollutants and carbon dioxide. In a new project, a research team from the Swedish National Road and Transport Research Institute (VTI) and the University of Gothenburg has received SEK 6.4...


2017-11-30

New research programme for more efficient travel

The Swedish National Road and Transport Research Institute (VTI) is playing an important role in a major new research programme to find radical solutions leading to fewer trips and more efficient travel, along with tools to enable better use of roads and...


2017-11-30

Simulator used to practice emergency responses safely

Emergency responses of the police, ambulance, and rescue services are associated with a high risk of accidents, but practicing them in real traffic is neither safe nor permissible. A simulator-based method developed by the Swedish National Road and Transport...


2017-10-26

Simulation of cut-in by manually driven vehicles in platooning scenarios

A study in a VTI-driving simulator has showed that a platoon will be able to handle a cut in from a manually driven car. The results of this study have recently been presented at two conferences in Japan.


2017-10-16

ERPUG Forum

The five-year anniversary of European Road Profile Users' Group (ERPUG) Forum will take place at Ramboll head quarter, Copenhagen, Denmark October 19-20, 2017.


2017-09-29

Self-driving buses in Sweden next year?

A self-driving, fossil-free bus. This idea might become reality through a forthcoming collaborative project involving the Swedish National Road and Transport Research Institute (VTI), Linköping University and several other participants. The project group aim...