Department of Economics and Business Economics

Asymmetric Information, Self-selection, and Pricing of Insurance Contracts: The Simple No-Claims Case

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  • Catherine Donnelly, Heriot-Watt University, United Kingdom
  • Martin Kristian Englund, Denmark
  • Jens Perch Nielsen, Cass Business School, United Kingdom
  • Carsten Tanggaard
This article presents an optional bonus-malus contract based on a priori risk classification of the underlying insurance contract. By inducing self-selection, the purchase of the bonus-malus contract can be used as a screening device. This gives an even better pricing performance than both an experience rating scheme and a classical no-claims bonus system. An application to the Danish automobile insurance market is considered.
Original languageEnglish
JournalJournal of Risk and Insurance
Volume81
Issue4
Pages (from-to)757-779
Number of pages23
ISSN0022-4367
DOIs
Publication statusPublished - Dec 2014

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