Surprising Selection Effects in the UK Car Insurance Market

Arbeitspapier

We document a large and persistent anomaly in the UK car insurance market over the period 2012-13: insurance companies charged a higher premium for third-party (liability) insurance than comprehensive insurance (which includes third-party). Furthermore, some companies charged higher prices for comprehensive policies with larger deductibles. This evidence suggests both that consumers are too confused or too poorly informed to arbitrage and that sellers of car insurance do not implement the incentive-compatibility constraints at the heart of the adverse-selection model of insurance. This particular insurance market is much less sophisticated than that characterised by modern microeconomic theory.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 8172

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Insurance; Insurance Companies; Actuarial Studies
• Subject: car insurance ; adverse selection ; bounded rationality

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cannon, Edmund ; Cipriani, Giam Pietro ; Bazar-Rosen, Katia
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/98958
• Last update: 10.03.2025, 11:44 AM CET