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Empirical tests for ex post moral hazard in a market for automobile insurance

Published online by Cambridge University Press:  03 November 2021

David Rowell*
Affiliation:
Centre for the Business and Economics of Health (CBEH), The University of Queensland, 4067 Brisbane, Australia
Son Nghiem
Affiliation:
Centre for Applied Health Economics and School of Medicine and Dentistry, Griffith University, 4111 Brisbane, Australia
Luke B. Connelly
Affiliation:
Centre for the Business and Economics of Health (CBEH), The University of Queensland, 4067 Brisbane, Australia Department of Sociology and Business Law, The University of Bologna, 40126 Bologna BO, Italy
*
*Corresponding author: E-mail: d.rowell@uq.edu.au

Abstract

Ex post moral hazard arises when the insured has an unobservable influence on the size of a loss after its occurrence. In automobile (property) insurance, ex post moral hazard could increase in the scope of the repairs and/or the value of the repairs. Both vehicle owners and auto repairers could gain from increasing the scope of repairs, while auto repairers would gain from an increase in the value of repairs. An analysis of 994 Australian road traffic crashes found that ex post moral hazard increased the value of repairs by 46.8 per cent of which 9 percentage points was explained by an increase in the scope of the repairs, which was defined as an increased from 2 to 2.4 parts per auto repair.

Type
Original Research Paper
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of Institute and Faculty of Actuaries

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