Propitious selection in the vehicle insurance market
2010 (English)Report (Other academic)
By combining Contract Theory and vehicle positioning techniques, insurance companies can replace some of the proxies for risk by actual traffic behavior when pricing the premium. A mechanism design model is used to illustrate that Usage Based Insurance (UBI) can separate risks in terms of driving behavior. This makes it possible to reward safe driving habits since the pricing scheme better reflects the accident risk. The conclusion is that UBI provides an actuarially fair premium for the insuree. It is further an efficient instrument to separate risks for the insurer since it reduces the information asymmetries highlighted in this paper.
Place, publisher, year, edition, pages
Borlänge: Statens väg- och transportforskningsinstitut, 2010. , 25 p.
CTS Working Paper, 2010:2
Insurance, Car, Risk, Risk taking, Driver, Mathematical model
Research subject Road: Traffic safety and accidents, Road: Accident costs
IdentifiersURN: urn:nbn:se:vti:diva-713OAI: oai:DiVA.org:vti-713DiVA: diva2:669413